1 Introduction
Overview
1. This Report summarises the work of the Business
and Enterprise Committee (now the Business, Innovation and Skills
Committee) in Session 2008-09. In our previous Sessional Report[1],
we noted the departmental reorganisation which had created the
new Department for Energy and Climate Change, and removed scrutiny
of energy from our remit. This year, there has been another change
in the machinery of government, to create a new Department for
Business, Innovation and Skills, and the Committee has been renamed
accordingly. Our remit has been enlarged to include innovation
and skills, and the further and higher education sector. There
are always difficulties with defining boundaries, but we welcome
the fact that innovation policy and business policy have been
brought together. We also believe that the inclusion of further
and higher education in a large, powerful department could benefit
the sector. Moreover, although we recognise that it is inadequate
to consider the education sectors solely in the context of their
measurable economic benefit to society, it remains true that education
is fundamental to any advanced economy. We believe there should
be benefits from its inclusion in the Department for Business,
Innovation and Skills.
2. The changing departmental responsibilities occurred
in June 2009, late in the Session. Our programme is set some way
in advance and therefore most of the remainder of the year has
been spent dealing with business related inquiries. We expect
the balance of our work to change somewhat in the future and we
have recently announced a new inquiry into further education funding
and the transitional arrangements for the Skills Funding Agency.
3. Last year we set out our aspiration "to combine
a programme of strategic long-term inquiries with the ability
to be 'fleet of foot'—in other words, to respond quickly
to outside events, and produce reports that have immediate impact."[2]
This approach has been particularly valuable in the troubled economic
circumstances of the last year. We have arranged a series of
hearings on financial support to small businesses and one on the
Government's response to the economic crisis, and built on these
to arrange inquiries into particular policies or programmes when
appropriate. We also made sure our regular work addressed themes
of current importance, so we chose to scrutinise the Insolvency
Service as a Departmental Agency, and focussed our regular inquiry
into exports on "Exporting out of recession".
4. But we also considered that crisis management
should not be our only concern. Early in the Session we published
a "legacy" report on energy policy, an area where the
Committee had had a sustained interest.[3]
We also followed up the then Trade and Industry Committee's earlier
work on Pub companies. In addition, we continued our work on
the Post Office network, with a major inquiry into the function
and future of the network. We also completed our inquiry into
the Higher Value-Added Economy.
5. In the past year we have responded to urgent events.
In two cases, described in more detail below, we have commented
on Government legislation in time to inform Parliamentary proceedings.
More recently, we met in September to consider the Inspector's
Report on the Rover group companies, then newly published.
Working methods
6. We are a cross party Committee and proceed by
consensus. This Session, we have agreed eleven reports without
a single division. This has not prevented us addressing politically
charged issues, such as the Postal Services Bill; our aim in these
cases has been to examine the evidence given to us, and base our
conclusions upon it. We believe this cross party, evidence-based
approach, gives our Reports credibility, and adds greatly to their
influence.
WIDER ENGAGEMENT
7. As in previous years, we have been keen to draw
on as wide a range of experience as possible in the course of
our inquiries. This has meant engaging with the public in novel
ways—such as the web forum we ran as part of our Post Offices
enquiry—which provided a solid base for that Report. It
has also led us to undertake a wide range of UK visits in the
course of our work, to make sure that we did not look at matters
from a purely Westminster perspective. In the course of our Post
Office inquiry we visited Essex, Devon and Cardiff, and held meetings,
as well as discussions, with local authorities and a wide range
of stakeholders. For our inquiry into the automotive industry,
we took the bulk of the evidence in the West Midlands and North
West. More recently, we travelled to Bristol to hold meetings
both with experts and academics in the aerospace industry.
FOREIGN TRAVEL
8. Understanding the wider context in which government
works is an extremely important part of our programme. The United
Kingdom is part of the global economy. It is one of the world's
largest exporters. It is also part of the European Union. This
context means that foreign visits are essential to our work.
In the last Session we visited the Middle East in connection with
enquiry into Exporting out of recession. We also visited Paris,
Toulouse and Milan in connection with that inquiry, and also our
inquiry into the aerospace and motor sport industries. We also
continued our practice of visiting the European Commission once
a year for discussions with a wide range of officials. This annual
visit gives us the opportunity to assess developments in the European
Union, and underpins a great deal of our work programme. For
example, on the most recent visit we were able to discuss the
postal services directives, EU enlargement and telecommunications
policy. Visiting the European Commission gives us background
knowledge which could not be gained elsewhere, and we remain extremely
grateful to the Commission for facilitating this regular exchange
of views.
ADVICE AND EXPERTISE
9. Our staff is very small, and we supplement it
by using other expertise. In the course of the Session we were
supported by the following specialist advisers: Dr Sibylle Bauer,
Maureen Kearney, Mr Julian Maitland Walker, Naomi Nardi and Howard
Webber.
10. We were also able to draw on help from the National
Audit Office, the House of Commons Library, the Scrutiny Unit
and a Hansard Society Fellow. Drawing on such external assistance
not only helps us manage a fluctuating programme, it means that
we have access to a wider range of expertise than would be possible
if we relied on our core staff alone. We are extremely grateful
to all those who helped us, but we also record our gratitude to
our permanent staff whose hard work and flexibility have enabled
us to conduct our work so effectively.
QUALITY OF EVIDENCE
11. Our work depends on the quality of the evidence
we receive. It is important that witnesses speak freely, and that
they are accurate. We recognise that people will wish to present
their case in the best possible light, but we will assess that
case on the strength of the evidence they put forward. In one
instance last year we felt witnesses had been less than frank.
12. In our report on Pub Companies we noted:
In evidence to us both Mr Thorley of Punch and Mr
Tuppen and Mr Townsend of Enterprise Inns made assertions which,
on investigation, proved to give a partial picture, or on one
occasion were positively false. We recognise that those giving
oral evidence may need to simplify a complex picture, and that
slips of the tongue may occur, but these repeated slips have undermined
the reliability of their evidence.[4]
After the Report was published, Mr Tuppen wrote to
us expressing concern about these remarks, which he considered
defamatory. We are happy to put on record that it was not Mr Tuppen
who made the false assertion referred to (which was promptly corrected
by Mr Thorley in further written evidence). We are equally happy
to note that, as the Report said, matters may be simplified in
oral evidence, and the issue was not whether evidence given
had been so misleading that the Committee felt compelled to take
action, but whether the nature of the evidence meant that we should
approach it with caution. We see no reason to change that judgement.
13. Mr Tuppen's concerns arose from the fact that
material published by Order of the House is privileged, and that
he had no legal remedy for allegedly defamatory remarks. We take
the responsibilities of privilege extremely seriously. For this
reason we were measured in our original comments, and also decided
not to publish everything submitted on both sides of the debate.
In doing so, we saw no reason to extend privilege to matters which
were not central to the inquiry, or to personalise our investigation.
Mr Tuppen's assertion that he would have taken action if they
had been made in a non-Parliamentary context is regrettable.
14. We would also like to record that when Mr Tuppen
first contacted us about the remarks in the Report, we told him
we were more than happy to publish either his original letters
to us on the matter, or a fresh memorandum dealing with it. However,
we made it clear that other witnesses had also approached us after
publication of the report, asking us to put more material in the
public domain, and that, in fairness, we would have to consider
their representations also. We believe that this was the correct
response, and are disappointed that Mr Tuppen was not content
with this approach, which would have enabled his concerns to be
put fully in the public domain.
Recurring themes
15. There have been a number of issues which have
occurred across different inquiries, or have been raised in many
different contexts, which we summarise here.
THE ROLE OF GOVERNMENT, THE COMMITTEE
AND THE PRIVATE SECTOR
16. During the economic crisis, the Government launched
a number of interventions, such as the Enterprise Finance Guarantee
Scheme and the Automotive Assistance Programme. Our scrutiny has
enabled us to monitor the design and implementation of these schemes.
Although individual Members may have varying views on the effectiveness
of some Government actions, the Committee as a whole agrees that
the economic crisis has demonstrated the importance of the Government's
role both in setting the framework within which private sector
decisions are made, and in supporting our industry. Nonetheless,
Government is limited to setting the framework within which private
sector actors, be they banks or individual companies, can conduct
their business. Although Government and Committee scrutiny can
influence the overall policy of banks, it cannot and should not
affect individual lending decisions. But strong and sustained
committee scrutiny remains important. We have taken evidence
on bank lending to business regularly throughout the Session;
on two occasions we invited banks and business representatives;
on other occasions, we included the topic in evidence sessions
with Ministers. It is clear that although some individual banks
may be sustaining their lending, the availability of credit for
small and medium-sized enterprise has diminished, and the terms
on which that credit is available have become tighter. It is
also clear that, as we said in our Report on the Enterprise Finance
Guarantee Scheme,[5] political
scrutiny of the level of bank lending, both from the Government
lending panel, and from bodies such as this Committee, has gone
some way to restraining banks, reducing the amount by which they
may have increased their margins, and possibly increasing pressure
on them to lend. We intend to continue to keep the terms on which
banks offer business finance under review.
17. In the course of our scrutiny, many individuals
have provided us with details of their cases. We have great sympathy
for those who have lost their businesses as a result of a credit
crunch, either directly because of worsening trading conditions,
or because banks withdrew lending facilities. Those who provide
case studies help us monitor what is happening within industry,
and we are extremely grateful to them. Our continued scrutiny
is intended to reduce the likelihood that otherwise viable businesses
will fail because credit is withdrawn inappropriately. However,
just as the Government cannot police every financial transaction,
so we as a Committee cannot and should not intervene in individual
lending decisions. Sometimes the correspondence we receive suggests
that we should prevent banks from making particular commercial
decisions. Neither we nor the Government have the power to do
so.
WIDER SUPPORT FOR INDUSTRY
18. Another emerging theme this year was the importance
of perceptions in ensuring the health of British economic life.
Our inquiry into the automotive industry exposed two important
issues. First, that the United Kingdom automotive industry remains
important, and, in some important areas, world beating. Second,
that although the Government acknowledges this, there is a perception
that it is not prepared to support the UK automotive industry
in the way that other Governments support theirs. We warned that:
The danger is that without a clear government strategy,
and sufficient support, valuable skills and capacity will be lost
to countries which more clearly demonstrate their readiness to
support the industry. In some cases this will be as much about
rhetoric and perception as about real levels of support, but the
effect will be the same.[6]
19. During this Session we drew our long-running
inquiry into what makes a higher value-added economy to a conclusion[7].
One of our key findings was that overemphasising the challenges
facing the United Kingdom in itself could lead to economic decline.
If the message is given that manufacturing is in absolute decline,
when in fact the United Kingdom remains the sixth largest manufacturer
of goods in the world, or even that an entrepreneurial career
is too risky to be contemplated, then talented people will make
their career choices accordingly, and potential trade or investment
partners could be deterred. Over the course of that inquiry,
the First Secretary of State evolved a new industrial policy;
there has been a series of policy papers which, together, are
welcome in their assertion of the very real strengths of British
business, and the British education sector. The challenge is
now to make sure these policies are translated into effective
action.
BARGAINING POWER IN PRIVATE CONTRACTS
20. In our report on Pub companies[8]
we expressed concern about the lack of legal protection against
the abuse of bargaining power in commercial contracts, in contrast
to consumer law, where the unfair contract terms regulations apply.
We remain concerned about this potential problem, which goes
far wider than the pub industry. During our work on energy we
became aware of serious contractual issues relating to energy
supplies to small companies, and the Competition Commission has
commented on relations between suppliers and customers. This does
not extend simply to the legal system; there may be problems with
systems of redress which exclude some companies. In the course
of the year we have received complaints about the lack of protection
for reasonably sized companies in their relations with banks.
This is a complex area. It may be that although the current
position has drawbacks, attempts to make changes would make matters
worse. This is not something that can be dealt with in a few
months before a general election, but we think it would be desirable
to establish whether there are widespread concerns about the legal
and consumer protections available to smaller companies. This
is an important issue and one which we hope will be addressed
in the next Parliament.
MINISTERIAL REPRESENTATION IN THE
HOUSE OF COMMONS
21. In our final report of Session 2007-08, we drew
attention to the difficulties caused when a Secretary of State
was in the House of Lords.[9]
In subsequent work, we drew attention to the high proportion of
BERR Ministers in the House of Lords. The new Department also
contains many Lords Ministers: Rt Hon Lord Mandelson, First Secretary
of State, Rt Hon Lord Drayson, Minister for Science and Innovation,
Lord Davies, Minister for Trade, Investment and Small Business,
and Lord Young, Minister for Postal Affairs and Employment Relations.[10]
22. We have structured our programme over the Session
to ensure that Lords Ministers give evidence to us on their policy
areas; and we are grateful to them for their willing cooperation.
However, this does not deal with the problem that they are not
available to scrutiny by the House as a whole. In previous years,
we proposed that procedures should be developed to allow Ministers
in the House of Lords to answer questions from Members in the
Commons. In September, Mr Speaker made a speech to the Hansard
Society in which he stated his intention to address this issue.
23. It is only fair to add that the Secretary of
State has offered to come before us more frequently than usual
which we appreciate. Until more satisfactory arrangements are
made, we will attempt to draw evidence from Lords' ministers to
the House's attention whenever it is relevant.
What have we achieved?
24. Committees have power to call for evidence, hold
public hearings, and report. They have no direct executive power.
However, this does not mean our work is not effective. Sometimes,
a Committee achieves an immediate result; more usually, Committee
scrutiny leads to a gradual change in policy, or even in public
perception. This may take far longer than the single Session covered
by these Reports. Often, results are achieved by repeated inquiries,
sometimes taking place over several Parliaments.
25. The work on Energy conducted first by the Trade
and Industry Committee, and then by the Business and Enterprise
Committee has been effective in creating a consensus that, unless
action is taken soon, there is likely to be an energy gap and
that the energy market is not functioning efficiently. This in
turn has led Ofgem to announce policy changes, such as:
- rules to prevent unfair pricing;
- rules to protect small businesses;
- rules to ensure that direct debits are set fairly,
and clearly explained.
Similarly, in our Report Construction matters,[11]
we recommended that there should be a Chief Construction Officer.
That recommendation was accepted by Government and on 25 November,
Mr Paul Morrell was appointed as the new Chief Construction Adviser.
26. Our Report on the Postal Services Bill[12]
influenced the formal debates on the Bill in the House of Lords
and the wider debate about the principles underlying the Bill.
It was effective because it concentrated on the proposals in
the Bill itself, and the case the Government made for them, not
on Members' individual political positions. The Committee had
a very wide range of views about what reforms might be needed
to make Royal Mail plc more effective, and to reduce its losses,
but easily reached agreement on the inadequacy of the present
regulatory framework for postal services, the Royal Mail pension
deficit and the need for more clarity over the proceeds from any
sale of Royal Mail Group.
27. However, although the Committee's most significant
influence is probably felt over the long term, inquiries can also
produce speedy results. As a result of our inquiry into the Insolvency
Service,[13] extra funding
was allocated to ensuring that the Service's work in securing
sanctions against individuals was properly publicised. We think
this should increase this deterrent effect. The Government has
also undertaken to bring forward measures to increase the transparency
of insolvency practitioner's pay, so that creditors are better
able to challenge excessive claims.[14]
In addition, the Insolvency Service is looking at the extent
to which practitioners comply with existing standards. This may
not be enough, but is a very welcome first step.
1 Third Report of Session 2008-09, Work of the Committee
in 2007-08, HC 175, para 2 Back
2
Third Report of Session 2008-09, Work of the Committee in 2007-08,
HC 175, para 8 Back
3
First Report of Session 2008-09, Energy policy: future challenges,
HC 32 Back
4
Seventh Report of Session 2008-09, Pub companies, HC 26,
para 10 Back
5
Tenth Report of Session 2008-09, Enterprise Finance Guarantee
Scheme, HC 588 Back
6
Ninth Report of Session 2008-09, Automotive Assistance Programme,
HC 550, para 50 Back
7
Eleventh Report of Session 2008-09, Risk and Reward: sustaining
a higher value-added economy, HC 746 Back
8
Seventh Report of Session 2008-09, Pub companies, HC 26 Back
9
Fourteenth Report of Session 2007-08, Departmental Annual Report
and Scrutiny of the Department for Business, Enterprise and Regulatory
Reform, HC 1116 Back
10
www.bis.gov.uk/ministers Back
11
Ninth Report of Session 2007-08, Construction Matters,
HC 127 Back
12
Fifth Report of Session 2008-08, The Postal Services Bill,
HC 172 Back
13
Sixth Report of Session 2007-08, The Insolvency Service,
HC 198 Back
14
Fourth Special Report of Session 2007-08, The Insolvency Service:
Government Response to the Committee's
Sixth Report of Session 2008-09,
HC 919 Back
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