Examination of Witnesses (Question Numbers
1-19)
The Rt Hon Vince Cable MP,
Secretary of State for Business, Innovation and Skills, and The
Rt Hon David Willetts MP, Minister of State for Universities
and Science, Department of Business, Innovation and Skills
26 October 2010
Q1 Chair:
Good morning Ministers, and in the case of Mr Cable, welcome back.
Can I thank you for appearing before us today? Obviously, postCSR
announcement there are a whole range of issues that the Committee
wishes to tease out. Can I start with a very broad question,
in terms of the total funding for the Department? The Chancellor
has stated that your Department has been set savings of 7.1% per
annum. Overall we're looking at a total of 25%. In terms of capital,
I believe it's virtually 50%, as opposed to an average of 29%
for other Departments. Why has your Department been singled out
for cuts over and above those that others have had to sustain?
Vince Cable: Well
I don't think it is, but maybe I can answer your question by putting
it in context. Clearly, the Government's agenda is dominated
by the need to deal with the deficit and we have to make a contribution
to that. I think it was accepted by the last government, as well
as this one. This is what's fondly called an 'unprotected department',
in other words we're not in the same position as Schools, Health
and Defence. I think our settlement is very much within the same
framework as those other Departments. Essentially, what has been
agreed is we have a reduction in the resource budget of 25% over
the period of the spending review, which is actually very much
in line with other so-called 'unprotected departments'. The cut
in the capital spend is 44% and that incorporates the receipts
we expect to receive on things such as spectrum allocation. In
terms of how it is broken down, the cut in funding on higher education
is 40%, which means that the rest of the Department, on a weighted
basis, is 16%. The way we like to present it—in a way that
is more economically meaningful—is this: about two thirds,
around 65%, of the total cut in the budget is accounted for by
a reform in the way in which funding takes place. In other words,
we are replacing government support for university teaching by
graduate contribution. It does not affect the level of activity,
it is not a cut in real activity, but it is a change in the way
in which funding takes place—transferring from current government
spending into future contributions by high earning graduates in
a progressive way—
Chair: I am sorry to interrupt
you. We will cover higher education spending as a separate thing.
Vince Cable: I
am just trying to explain that there's a split. There is 65%
through reform, as we described it, in terms of the replacement
of government funding by graduate contribution. About 25% occurs
through efficiency, which includes various categories—pay
restraint, getting a better deal on international science subscriptions,
cutting partner organisations—quangos if you like—from
57 to 33, and waste reduction of various kinds. Only 10%, that's
a tenth, of the cuts that we're making, involve cutting real activity.
Those are things where we've consciously made a decision to
prioritise—RDAs are one example, another is changing the
Train to Gain logic, it will in future focus on SMEs rather than
all companies, and ending the entitlement to GCE-equivalent training
for people over 25. Those are choices we have made, but only
10% of the total cuts represent real activity. I am sorry it
is a long answer to your opening question, but the final thing
is that a lot of fine detail needs to be developed. We are talking
in very, very broad-brush aggregates. We want to work with you
on that and exchange information once we have done the detailed
work. At the moment we are talking in very broad terms, necessarily.
Q2 Chair:
We will probe education funding in due course. However, you have
described your Department as the "Department for Growth",
and yet you have taken, in percentage terms and certainly in terms
of public profile, a bigger hit than other Departments. What
sort of message do you think that conveys to the world outside?
Vince Cable: I
don't think they are in any way incompatible. I think it is possible,
and we will continue to position ourselves as the "Department
for Growth" because we are looking at outcomes, not just
inputs of government spending. Many of the things we are taking
on support the growth agenda—things I have not yet mentioned.
We will have responsibility for the Green Investment Bank as
it is launched, and a key role in the Regional Growth Fund. We
have increased, over the spending period, the commitment to apprenticeships—that
is within an FE budget that has necessarily been squeezed. There
is a focus, which was announced yesterday, on innovation centres,
and that will be an expanding programme of support for the socalled
Hauser Centres, and a variety of other very specific initiatives
that will promote growth. Growth is not just about spending money—it
is not primarily about spending money—but the output you
get from it.
Chair: Could I bring in
Jack Dromey, then I will go to Margot.
Q3 Jack Dromey:
Thank you very much. The biggest challenge is that of growth.
It is common ground that we need to rebalance the economy and
grow the private sector. If you look at that period of 1993-1999,
the last great period of recovery, the PwC figures are clear,
1.2 million jobs were created; 900,000 of them, however, were
in financial services. Now you are claiming the ability to create
2.5 million new jobs. Yet PwC has pointed to the loss of 1 million
jobs—notwithstanding their estimate that there is the capacity
for growth—1 million jobs, including half a million in the
private sector, as a consequence of the spending review. Is PwC
right?
Vince Cable: Well
I do not totally follow each step of that argument in the sense
that Government do not create private sector employment. We can
create the framework within which it operates, and we plan to
do that. I think it is worth noting that in the last three months
something in the order of 150,000 new jobs have emerged—much
of it in the private sector.
Q4 Jack Dromey:
You would not want to take credit for that, would you?
Vince Cable: No,
I would not.
Q5 Jack Dromey:
I know your ability is legendary, but you would have had to move
at the speed of Usain Bolt to be responsible for growth that was
clearly the consequence of measures taken by the last Government.
Vince Cable: I
was not trying to claim credit for it, or apportion credit between
this Government and the last one. I merely state that as a fact
of life we are getting substantial job creation in the private
sector on a scale which matches the expectations you have described.
Our job in Government is to create the framework for it. In
terms of the 19931999 period, the whole problem with that
period—as you know from the exchanges we have had—is
that it was based on a completely unreal economic model. It was
based on excessive leverage, in households particularly.
Q6 Jack Dromey:
Sorry to interrupt, but is PwC right when they predict half a
million job losses in the private sector as a consequence of the
spending review?
Vince Cable: I
do not know, I have not looked at the detailed analysis and the
multipliers involved. Clearly, there obviously is a private sector
supplier role in relation to the public sector, but I have not
gone through the arithmetic.
Q7 Jack Dromey:
Just to press you further on this, in terms of the methodology
of the Government. Communities and Local Government—their
budget will be cut by 27%. CLG spends £38 billion on
procurement and £20 billion on small and medium enterprises.
Has your Department conducted an impact study of what the cuts
in the CLG budget will mean in terms of impact on procurement
and therefore job losses in the private sector?
Vince Cable: Well,
we are looking at certain specific areas where procurement decisions
will have a genuine impact. For example, one of the decisions
I made last week was establishing a skills group to try to absorb
as many as possible of the advanced manufacturing skills that
would be displaced from the defence sector.
Q8 Jack Dromey:
Has a study been conducted? Because your expensive counterpart
in CLG has not conducted a study, I am asking if BIS, with its
particular responsibilities for growth, has conducted a study.
Do the Government have any idea what the consequences will be
of a 27% cut in the CLG budget for the private sector?
Vince Cable: As
part of the growth analysis that we are conducting in this Department,
in conjunction with others, we are looking at the sectoral impact
of what is happening in the economy and future growth. That includes
construction, which is clearly impacted by Government decisions,
so as part of a wider picture, we are undoubtedly looking at that.
I think that the premise of your question, which is that the
private sector is recoiling from the impact of Government spending
cuts, is not compatible with the feedback we get from all the
private sector organisations we talk to. I was with the CBI yesterday.
They are only one of several, but the FSB, the Institute of Directors
and Chambers of Commerce all acknowledge that the starting point
in Government policy has to be sorting out the Government's finances.
These are private sector organisations, which represent many
of the companies you are describing as being worried. Their overriding
concern is that we sort out the Government finances. They expect,
rightly I think, that there will be substantial private sector
growth in employment.
Q9 Jack Dromey:
If you look at house building, the House Builders Federation have
been absolutely clear that the consequences of the stimulus measures
that were taken over the last two years, have been to see 100,000
homes being built, effectively sustaining much of the industry
through a very difficult period. That programme is starting to
run out. What are the stimulus measures that will govern what
will happen over the next two to three years? The infrastructure
projects are very welcome but they have timelines of five, 10,
20 years. Could I ask this related question—are you lashed
to the mast? If the evidence is that growth slows in 2011, do
you believe that Government should adjust, including additional
stimulus measures, to sustain growth?
Vince Cable: On
the latter point, I think what is absolutely crucial is that we
have clear plans that people believe in and are credible and don't
waver every month according to the latest batch of numbers. That
is the purpose of the spending review—you get a four-year
time horizon over which to operate, and we are sticking to that.
Obviously there are instruments that can be used to help sustain
demand, and monetary policy is the most obvious area for that
and the Government have been quite explicit about recognising
the need for it.
Jack Dromey: Which would
be welcome, because you do not want to become the "Department
of Decline".
Vince Cable: No.
Chair: Brian Binley wishes
to come in before Margot.
Q10 Mr Binley:
Welcome Ministers, it's good to see you. It is always entertaining
to listen to Jack Dromey, who has a specific point of view and
puts it very effectively. It was well done. But is not the truth
of the matter that Governments never, ever create jobs—except
ones that cost the taxpayer a great deal of money—but that
the private sector creates the jobs. You are absolutely right
to say that it is our job to create the atmosphere in which they
work. The truth of the matter is the 300,000 jobs in the last
quarter was about a general upturn rather than about any Government
initiative of any kind. Is that fair to say?
Vince Cable: It
is. I think, in terms of the concept of Government creating jobs,
one of the things we do accept is that most of the jobs that will
be created will be in the small-scale enterprise sector. Historically
that is been the case, and many of the things that Governments
have to do relate to making it easier for entrepreneurs to start
up businesses and expand. This is partly a function of regulation
and making that less onerous. It is partly a question of taxation,
and the Government have brought in measures on national insurance
in relation to small companies, and just generally creating an
environment. Credit flows through the banking system are also
absolutely critical to small-scale enterprise growth. Those are
the policy instruments, rather than direct Government spending
and direct Government intervention.
Mr Binley: I am grateful
to you.
Chair: It is perfectly
legitimate to have a debate about the respective role of the private
and public sector in meeting Government employment targets, but
I would just like to perhaps refocus on the budget. Margot, you
wish to come in.
Q11 Margot James:
Thank you, Chairman. Secretary of State, you gave, in your introductory
answer, a fulsome account of how the Department has approached
the challenge of reducing expenditure by so significant an amount.
I think this Committee should be delighted that you have been
able to make these reductions without affecting the actual project
delivery by more than 10% of the total, which must be good news.
Could I just bring you back to the administration budget? That
part of the budget is to be reduced by 40% and in other Departments
the average, I think, is 33%. How is your Department going to
manage that reduction in the administration part of your budget?
Vince Cable: I
think it will be very tough. We do not underestimate that, but
it seems to me that the key economic Departments—ourselves
and the Treasury, among others—should set an example in
terms of operating Departments as efficiently as possible. One
of the earliest things we did within the Department was to institute
a voluntary redundancy programme, to make sure that this whole
process took place in an orderly way and with the consent and
support of staff. So we sustained morale and we have a very clear
focus on operating both the central Department and the partner
organisations in as efficient a way as possible. It's not going
to be easy and we do not pretend that, but if we are going to
ask for sacrifices in partner organisations and front-line delivery
of service, then we have to set an example in terms of head office
costs above all.
Chair: Could I bring in
Nadhim Zahawi.
Q12 Nadhim Zahawi:
Thank you. Secretary of State, I think I have got it right here,
in the sense that you said one quarter of the savings is coming
from the abolition of the arm's length bodies and the quangos.
Vince Cable: They
contribute part of that quarter, yes.
Q13 Nadhim Zahawi:
Not the whole quarter?
Vince Cable: No.
.
Q14 Nadhim Zahawi:
What proportion of the savings is coming from the abolition of
the quangos?
Vince Cable: I
cannot give you a figure off the top of my head, but we are cutting
the number of partner organisations from 57 to 33. A substantial
amount of savings originate there. There are other items; we
include pay restraint within that general category. David has
been directly involved, for example, in overseeing the reduction
in subscriptions to international organisations, which we put
there. There are several other elements.
Q15 Nadhim Zahawi:
Can you give us that figure at a later stage?
Vince Cable: I
am sure we could.
Q16 Nadhim Zahawi:
That is very kind. The comprehensive spending review talks about
the 57 down to 33, and talks about the saving of £1.5 billion
from abolition of the RDAs. What is the total figure that you
expect to save, over and above just the RDA reduction, from the
quangos? Or is it just coming from the RDA abolition?
Vince Cable: Well,
we have included the savings from phasing out the RDAs in the
final category—the 10%—because that is real activity.
We would argue it is not done in the best way but it is real
activity and so we accept the fact that we are taking a direct
hit on that, in terms of things that the Department does. The
RDA spending features in that last category, though there are
administrative overheads as well.
Q17 Nadhim Zahawi:
Is it the bulk of that, would you say?
Vince Cable: It
is, almost certainly, the largest saving in terms of the real
reduction in activity that we are undertaking. Some of the activities
coming out of the RDAs will continue; we think the Manufacturing
Advisory Service is excellent. Some of their innovation work
is not done very efficiently at regional level but we certainly
want to continue innovation activity, that is why these new innovation
centres are being launched. But it will build on the work that
is currently operating at regional level.
Q18 Nadhim Zahawi:
I think we are going back to the innovation centres later in the
session, but just a final one on this point. What is the gross
or net reduction in head count in the Department?
Vince Cable: I
ca not give you a specific figure. I have to say, as someone
who's seen this operating in the private sector as well, I think
just cutting head count is probably not a sensible way to downsize
operations. After all, a senior manager costs an awful lot more
than a cleaner, so simply cutting numbers isn't the best way of
doing it. We are trying to reduce our administrative costs.
Q19 Nadhim Zahawi:
I do not disagree with you; it would just be good to know. What
proportion of the quango employees might be re-employed within
the Department? Do you have an idea of that?
Vince Cable: I
would probably need to give you a letter on that. I think there
are one or two specific outsourced activities to quangos that
will be dealt with within the Department. One of the points we
make about the RDAs was that there were some of their activities
that are perhaps best done at a co-ordinated national level.
UKTI is a good example. We think this is best offered nationally,
in a strategic way, rather than have RDAs competing for foreign
investment and trade opportunities, so that will come back into
a national structure.
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