CORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 945-i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

BUSINESS, INNOVATION AND SKILLS Committee

THE PLAN FOR GROWTH

Wednesday 27 April 2011

RT HON VINCE CABLE MP

Evidence heard in Public Questions 1 - 103

Oral Evidence

Taken before the Business, Innovation and Skills Committee

on Wednesday 27 April 2011

Members present:

Mr Adrian Bailey (Chair)

Mr Brian Binley

Paul Blomfield

Rebecca Harris

Margot James

Mr Dan Jarvis

Simon Kirby

Ian Murray

Mr David Ward

Nadhim Zahawi

________________

Examination of Witness

Witness: Rt Hon Vince Cable MP, Secretary of State for Business, Innovation and Skills, gave evidence.

Q1 Chair: Thank you for attending. Obviously, you need no introduction, but could you introduce yourself just for the purposes of voice recognition?

Vince Cable: I am Vince Cable, Secretary of State for Business, Innovation and Skills.

Q2 Chair: We need to crack on. Before I go into specific questions on UKTI, the last quarter’s published figure of 0.5% growth in GDP and £3.26 billion of bank lending look pretty grim.

Vince Cable: It is down.

Q3 Chair: Down, yes. Can you say how far you think the strategy for growing our way out of recession is progressing?

Vince Cable: I think the strategy is clearly visible in the statistics we have. The process of getting out of this economic mess is a double-headed approach; it is getting on top of the fiscal imbalance and budget deficit. We were reminded this morning with the European figures about how serious this is. Obviously, we have to give priority to that and have been rewarded in favourable bond yields. It is also about rebalancing the economy. It is in part a question of aggregate growth, but also growth based on the private sector, private investment, exports and manufacturing. If you drill beneath the overall growth figures this morning, you will see that manufacturing growth is being sustained, which is exactly how it should be.

In terms of the various constraints on growth, you are absolutely right to say that access to finance is one of the most difficult. Indeed, the Bank of England’s figures last week showed negative lending to SMEs, which is very disappointing. I would not try to pretend otherwise. The Government has attempted a variety of initiatives in this field. There is the Merlin agreement on upping the amount of lending by banks, particularly to the SME sector. We are very much at the beginnings of that and we look forward to the Bank of England’s assessment. We have taken various other initiatives in terms of non-bank finance, some of which are beginning to bear fruit, but you are quite right to say that, in terms of access to finance, there is still a serious problem. That is confirmed to me whenever I meet groups of business people around the country.

Q4 Mr Binley: May I pursue that just a little more, Chairman? I should like to ask you two questions, Secretary of State. First, why do you think banks, whose job it is to lend to business, stubbornly refuse to do so even though they could score a particularly important plus point, bearing in mind that their PR has been bloody appalling over the last 10 years? Why do you believe they are simply not lending to small and medium-sized businesses?

Vince Cable: I think they would say-I would say it is accurate-that they are giving priority to strengthening their own balance sheets.

Q5 Mr Binley: Have they done that?

Vince Cable: That is what they would say. Indeed, to be fair to them, they are being required, under the tougher capital requirements, to build up their balance sheets, and that is taking precedence over the credit demands of the real economy. That is the way it is. It is also fair to say-the Bank of England say they did make this point-there is a shortage of demand. As you know, a lot of demand is discouraged. People ask a preliminary question of their local branch and are discouraged from applying. That is a real phenomenon. Those are the reasons. We have put in place a series of measures to try to counter this. If they do not work, we will have to look at others.

Q6 Mr Binley: Forgive me, Secretary of State. You will know that I have been going on about this for well over three years. We have not seen any improvement in three years. I recognise that banks have to build up reserves; they were down to 7% or something of that kind, and they are now close to 11%. Many people think that 7% was okay, but they are now up to 11%. I do not understand why they are still not lending to the sector that will provide the jobs and wealth. I wonder what more you and the Government can do. The Government has some clout. I just wonder why it is not throwing it about a bit more than it has done.

Vince Cable: We have been competing with each other in going on about this subject.

Q7 Mr Binley: We have, yes-I agree.

Vince Cable: We both recognise how serious a problem this is. In terms of what the Government has been doing, we have been trying to make it easier through enterprise guarantees, which have been extended, and we have this agreement with the banks. It was an agreement rather than an instruction because it involved banks that were not state owned; HSBC and Barclays had to subscribe to these Merlin targets. We are supporting wherever possible non-bank sources of finance, and quite a lot is now happening through business angels, measures in the Budget, the EIS and so on. Cumulatively, a large number of steps have been taken, but I share the basic premise of your question that we cannot allow banks, particularly those that are dependent on the taxpayer, to prevent the growth of the real economy and our recovery. We cannot allow that to happen.

Q8 Chair: Obviously, this will be an issue that we will monitor carefully. At some stage, as the picture emerges even more clearly, we may well require you to come before us yet again to talk us through it.

If I may turn to UKTI, its role has been highlighted in the BIS draft structural reform plans; the BIS business plan; the White Paper Trade and Investment for Growth; and The Plan for Growth. Yet we still do not have the strategy for UKTI. I understand that it is to be published on 10 May, but is this not rather putting the cart before the horse? You would reasonably expect the strategy, being so central to all the other government departmental plans, to have been published first. Why has there been this delay?

Vince Cable: I think the basic strategic direction of UKTI has been set out clearly enough. I summarised it in the trade White Paper when I presented it to the House. I think Lord Green has been before you and explained in rather more detail what is intended. A whole series of changes of emphasis are being made by UKTI. It is becoming more entrepreneurial; using private-sector expertise; providing the bespoke service to very large inward investors; refocusing its work much more on SMEs; the passport and gateway processes; mentoring; peer-to-peer review; identifying high-value opportunities around the world; and better relationship management. These points have already been brought out, but probably what lies behind your question is that all of them have to be done with a reduced budget. UKTI, like other bits of Government, has to make significant economies, but we believe they can improve their service even within a small budget because they have already shown in the last few years a very big increase in their physical productivity. If you measure the activities they have undertaken in relation to the number of trade advisers, they have increased by about 50% over four years. Their expenditure in order to achieve a particular result has improved by about 25% over three years, so we believe that greater productivity and better organisation can deliver these improvements.

Q9 Chair: Is it not odd that something so central to all the plans for growth that underpin the Government’s economic strategy has not had its own strategy published and outlined? I accept the points you make about staff, funding and so on, but that applies across the board. Why has UKTI been so delayed when it is central to everything else the Government wants to achieve?

Vince Cable: I think you may be over-dramatising this. As I have said, there is a very clear strategy and we have described it. I do not think that the publication date of a particular document should be regarded as utterly crucial.

Q10 Chair: With respect, a clear strategy comes with publication and it has not been published yet.

Vince Cable: The trade White Paper was a Government publication that I introduced to the Commons, and it described what we were trying to achieve in terms of trade and was strategic in its approach.

Q11 Chair: But not UKTI.

Vince Cable: I accept that clearly there will be more clarity and opportunity for you to hold us to account once that document is apparent, but it is not the only factor. As you know, the chief executive has not yet been appointed, and that is equally critical to giving a sense of strategic direction.

Q12 Chair: What is in the "new package of support" that UKTI will provide for SME exporters as a result of the trade White Paper and The Plan for Growth?

Vince Cable: I think that in many ways it is a question of building on existing initiatives. The main way in which SMEs are helped is partly through the passport initiative; that is, new companies and SMEs getting into international trade for the first time. I think that 1,250 companies helped last year, and it will be sustained at that level despite the economies. The gateway process also helps small companies that have been in the export business for two or three years. There will be a temporary dip from 1,750 to 1,250 in the number of companies supported in that way, but it will go back up to previous levels by the end of the spending period. Those are the main vehicles by which SMEs have been helped. But there are new activities, which I mentioned. They include enhanced mentoring; much more access to business advisers; and the peer-to-peer process for which UKTI is setting up a website later this year. There is a clear focus within the overall programme of SME support.

Q13 Chair: Is not "building on initiatives" Government-speak for "nothing much has changed"?

Vince Cable: No. I think what is changing is a much more businesslike approach and a greater willingness to utilise the expertise of the private sector.

Q14 Chair: We are told that the senior business specialists will be mentoring new exporters. Are they to be paid? How are they going to be recruited? From where are they coming?

Vince Cable: There will be some business specialists who are on contract. There will be the PA Consulting initiative in respect of inward investment, but in addition there is a substantial network of businesspeople who give of their time. I think there are over 200 on the various advisory groups around the country. In addition, you have business ambassadors-very high-level, prestigious individuals-who operate voluntarily. We want to enhance that with a group of people we call catalysts, of whom there are about 500. They are also business people who give of their time in support of the business ambassadors. Therefore, through a combination of paid contract services and voluntary work, we want to make sure that export promotion and support is backed up by business people who have actually done this themselves.

Q15 Chair: One of those is basically the successor to the UKTI representation often at RDA level. Are you saying that all the business volunteers are new, or did they exist under the old or previous regime?

Vince Cable: I cannot account for them person for person, but I imagine there will be a fair degree of carry-over.

Q16 Chair: The trade show access programme has been highly commended to the Committee by SMEs. I believe that the Government has indicated that it is continuing it, but is it being funded?

Vince Cable: It is continuing and is funded, but at a lower level because that programme, like others, has had to take its share of cuts. I think that the overall reduction of the spending review is of the order of 25%. UKTI will reconcile that cut in funding with a high-quality service by trying to be much more efficient in supporting the people who are beneficiaries of this. In the past, there has been a combination of matched funding and support-people have come, exhibited and gone back home-and UKTI believes that if it is part of a much more integrated process, working through the passport and gateway schemes, it can get much greater value for money out of the exhibitors it supports. You are quite right to draw attention to the fact that it is trying to do more with less, but there is a thought process behind it.

Q17 Chair: Business representatives have said that the relatively small grants available to SMEs to attend trade shows are absolutely invaluable to them. You talked about making things more efficient. I do not quite see how you can make these particular grants more efficient. Are you saying there will be fewer, that there will be a higher degree of selectivity in granting them to small businesses, or what?

Vince Cable: I think the answer is more selectivity, choosing beneficiaries who can make best use of the grants. Although you started your question by saying it had been widely applauded, as it has, it has been cut very severely in the past. I think that in the 2004 spending review it was cut by half. There was a feeling even then that the money was not always best used. The thinking now is that it could be better used.

Q18 Chair: Has any analysis been made of the potential impact on SMEs of the reduction in funding?

Vince Cable: Analysis has been done based on the feedback we get from the embassies, who are the people who see these exhibitions on the ground, together with feedback from the trade sector bodies, not all of whom are happy because there is some reduction involved. Through consultation with them and our own people on the ground, an attempt is being made to make evidence-based judgments.

Q19 Mr Jarvis: The Government has announced as part of The Plan for Growth that UKTI will "use FCO and UKTI to provide UK businesses with local intelligence on high-value projects overseas and intensive support to win these deals". Can you give the Committee some examples of how this is different from UKTI’s current services to UK businesses?

Vince Cable: I cannot give you very specific examples, but the philosophy behind it is that roughly 50 mega-projects are being undertaken round the world in some of the big emerging market economies like China, India, Russia and Brazil. To give one example, when I was in India I discussed the development of the Delhi to Mumbai road and rail connection and all the infrastructure being built around that. I think it was felt to be a better use of resource to concentrate some of our trade and investment promotion activity on those mega-projects rather than take a more scattergun approach. I think that is what is meant by it.

Q20 Mr Jarvis: When you state that "the UKTI will set out clearly its customer service standards to ensure that exporters receive a consistently high-quality service across UKTI’s regional and overseas network", does that imply that UKTI has not been providing good customer service until now to exporters?

Vince Cable: I do not think it does. There is always scope for improvement. A few minutes ago I quoted some of the basic figures about productivity growth. Things can be done better in terms of both getting more out of the resource and meeting the expectation of consumers. One of the steps being taken with the PA Consulting contract on inward investment is that specific incentives will be built into it. There will be payment by results, which could be a better way of making sure that the consumer objectives are being realised.

Q21 Mr Jarvis: How do your proposals for UKTI account management of large inward investors differ from UKTI’s existing support?

Vince Cable: I think Lord Green has already explained his thinking about this, because he will be leading this exercise. For very large inward investors who could make a really big impact on the UK economy, we would like to provide what we call a bespoke service. A whole range of problems arise with planning and visas. It is not suggested in any sense that they will be given favoured treatment, but the bureaucratic obstacles could be overcome. If you approach a potentially large inward investor and discuss with them all the obstacles and make sure they are resolved quickly, that provides a better service than they are used to in other countries or that we have provided in the past. That is what he means by a bespoke service. Ministers will be directly involved in making sure that the obstacles are overcome.

Q22 Mr Jarvis: The Plan for Growth highlights access to Ministers as an additional benefit to inward investors. What level of access could foreign investors expect to receive?

Vince Cable: As I said in my previous answer, I do not want to imply in any sense that people are getting preferential treatment simply because they are big and foreign owned; that is not the point, but there are companies that make a major contribution to the UK economy. I already spend quite a lot of time meeting their representatives as they come through London. I see that as a key part of my job. In many cases, for them to be able to feel that they are speaking to a secretary or minister of state makes a difference. These are companies that often bring 10,000 or more jobs to this country. They have to be taken seriously, made to feel welcomed, and told that the country is open for business and we want their relationship to be properly managed. I do a lot of that already.

Q23 Mr Ward: One thing we picked up when we visited China was the fact that UKTI seemed to focus its efforts very much on the larger companies, for understandable reasons. It was easier for them to do big business with bigger companies that were used to dealing with UKTI. Is there a conflict between the aspiration to link much more closely the work of the UKTI with SMEs and, at the same time, to try to develop as much trade as possible as quickly as possible, which will be easier with big companies?

Vince Cable: I think you are right that the default option is to spend more time with the big companies because they are more visible and make known their concerns. I have led trade missions already to each of the major emerging markets, and what happens is very clear. We are very conscious of the fact that where Britain falls down relative to, say, Germany is that SME engagement is much lower. I think that a third of British SMEs get involved in international trade; in Germany it is much, much higher. If we are to turn the country round in terms of trade performance, those are the people we have to engage. That is why a special effort has to be made. I mentioned the passport and gateway schemes on which we want to build, because that is the real weakness in the UK. Of course, you can get easier results by working with the familiar companies and their ongoing projects, but if we are to transform our trade performance, it has to be with the SMEs.

Q24 Nadhim Zahawi: One of the ways in which Germany has been able to do that is that, if you look at their delegations, essentially it requires the giants of business in that country to take their supply chain with them. Therefore, the onus is not on civil servants of the department but the actual corporations to make sure that their supply chain joins them on those export drives. I just wonder whether these are things from which we are learning. I am encouraged by everything you have said until now. We are now focusing much more on outcomes than on inputs. It was felt that the focus was on how many exhibitions we could attend and drinks parties we could hold in embassies, rather than on particular contracts and how we could target them and win them. I just wonder how you feel about that sort of initiative, where you require corporations to take their supply chain with them.

Vince Cable: You are right. One area where perhaps we have been deficient in the past is in understanding the supply chain process and for Government in subtle ways to encourage that, because of course it cannot direct it. There are a couple of success stories that I certainly see at first hand. I chair the Automotive Council. There is already a well-developed process taking place, where the leading car companies are systematically trying to bring back bits of their supply chain that went overseas particularly in the recession in 2008. That is now happening on quite a big scale. There is a very strong sense in the British car industry, including its foreign-owned companies, that we hang together or hang separately, and that applies to export promotion as it does to domestic import substitutions. That is happening in the car industry and in the aerospace industry. I certainly agree with you that, to the extent it is possible to encourage it, we should be looking at export promotion in the same integrated way.

Q25 Nadhim Zahawi: You spoke about inward investment services being contracted out and the contract with PA Consulting, OCO Consulting and British chambers of commerce. Can you say a little more about that contract in two parts? First, how will it actually work in practice on the ground in terms of partnership with those three organisations? Second, how are they incentivised in terms of outputs rather than inputs? Is there an incentive for them to deliver results?

Vince Cable: I will say a little about it, but it is quite a penetrating question and maybe I need to send you more information on it. As I understand it, it is a £14 million contract over a three-year period. Essentially, its remit is to replace the inward investment promotion activities of the RDAs in the English regions other than London. Because that original system involved quite a lot of duplication, we think we can deliver a perfectly good service with less resource. Incentives are built in-payment by results-but we may need to explain to you in more detail exactly how that works. One of the separate parts of the out-sourcing work is the use of private-sector expertise to help develop the Tech City, as it is called, in the north-east of London-the Shoreditch development. That will also be approached in the same way.

Q26 Nadhim Zahawi: As to that, obviously I have to declare an interest. My previous incarnation was at YouGov, which I believe is involved with the Tech City in East London.

Vince Cable: Yes.

Q27 Nadhim Zahawi: I think you have answered the second part of the question. In terms of sub-contracting out it will involve not the head office but the regional offices.

Vince Cable: It is the head office with a contractual arrangement with PA Consulting instead of the original RDA system. That is the structure.

Q28 Nadhim Zahawi: As to the cost savings from the contracting out you have just mentioned, will UKTI lose funding as a result or will the previous funding of inward investment services be used somewhere else?

Vince Cable: In terms of overall Government savings, we are looking for savings in this area. We estimated that originally £21 million was spent by RDAs on trade and investment activities. Because there are no RDAs any more, that will become zero, so there is an overall saving to Government, but some of that has been ploughed back into this activity.

Q29 Nadhim Zahawi: When you created the local enterprise partnerships to take over the work of the RDAs, you stated that foreign inward investment would be led nationally, but The Plan for Growth now envisages a role for them in that area. Is this an example? I am all for it, but when I look at our Coventry and Warwickshire LEP I think it can contribute to that process. Is this mission creep for the LEPs? How will areas without a LEP be able to compete in attracting inward investment? Is there something to mitigate that?

Vince Cable: We are trying to avoid mission creep and recreating RDAs but having more of them. The whole essence of this is that they are private sector-led and they are not funded in the same way, but of necessity there has to be collaboration with the LEPs because in many cases the issues are different in different parts of the country. There are companies in a particular area that may have a particular sector focus. We need to know about that and their particular needs. As a result of that, a consultation is taking place at the moment on how this FDI-promoting activity will work with and alongside the LEPs. My understanding is that that is to be completed on 12 May and there will be an interim report as to how that works. Obviously, those areas of the country that have not yet got an LEP are not in a position to participate, but many of them already have chambers of commerce and subregional investment and trade promotion activities that we can link into.

Q30 Mr Ward: Even with the development of LEPs, where they exist, do you have any concerns that it will be very difficult for the regions to compete with Scotland, Wales and a very powerful London, which themselves will have their own economic strategies, for inward investment?

Vince Cable: Scotland is very well organised through Scottish Enterprise. I was involved in setting it up 35 years ago and it has survived in different forms. It is well organised. Wales is a very different story because it does not have an RDA equivalent or an LEP structure, so it considers itself disadvantaged relative to the English regions. Northern Ireland is again a different story. I do not think that competition with the other nations and regions of the UK is a problem, but I would certainly want to make sure that we are looking at the Scottish experience and seeing what difference that makes.

Q31 Chair: To focus on this for a moment, previously UKTI was often embedded in RDAs. Now we have UKTI for inward investment using PA Consulting with chambers of commerce and OCO. They will relate to LEPs, of which there are any number throughout the country. Do you not think you are setting up additional levels of bureaucracy that any potential inward investor would have to deal with?

Vince Cable: No. The whole purpose of replacing the RDAs with LEPs was to create a less bureaucratic system with a good deal less Government spending but none the less more local identity expressed through the local business community working with local councils. You pose a perfectly fair challenge. We must not simply reproduce sets of organisations with the same costs; that would be completely self-defeating, but they are not different levels. UKTI is driving this process and it is sub-contracting the inward investment work to PA Consulting, so it is one single organisation consulting with the LEPs where they have particular needs or something to contribute.

Chair: We will monitor it carefully.

Q32 Paul Blomfield: If I may return to the issue of resourcing UKTI that you touched on earlier, when we met the acting head, Susan Haird, a short while ago, she told us that the overall final budget package, in particular the number of overseas posts, would be coming shortly. Are you now in a position to share with us what that is?

Vince Cable: No, I am not in a position to tell you exactly the number of personnel and what they are doing. We know the aggregate financial figures, of which I think you are aware anyway. This is a cash reduction overall of about 17%.

Q33 Paul Blomfield: Is that going to impact on the number of overseas posts?

Vince Cable: Yes, it will. The number of trade advisers is being reduced from 250 to 200. That is one of the key elements of the staffing, so there is a reduction.

Q34 Paul Blomfield: I was going to return to the specific point about trade advisers. On the overseas posts specifically, given you have set an ambitious plan, do you think that to achieve it without the resources in place is nothing more than an aspiration?

Vince Cable: It is not an aspiration; it is businesslike. Earlier, one member of the Committee said he recognised that we were looking at outputs rather than inputs. That is the way any well-organised outfit has to function. We are looking at what it can achieve rather than simply measuring the amount of money that is being spent and staff delivering it. It is a different approach.

Q35 Paul Blomfield: "Looking at outputs" and "achieving more with less" are popular phrases, but our predecessor Committee was warned by, for example, the Institute of Directors that in this area we would be taking enormous risks with the economy if we made the sort of cuts that you are talking about. Do you think you can really achieve more with less? Perhaps you can illustrate your answer by providing some detailed examples of how the extra work that you envisage for UKTI will be delivered with a reduction in resources?

Vince Cable: I think phrases like "serious risk to the economy" massively overstate it. Clearly, it is difficult for any organisation to deliver ambitious targets with less money. All businesses have to face this the whole time; Government now has to face it. UKTI has to take its share of Government cuts, as do all bits of my Department, with one or two exceptions. This is not unique. What I said very early on in this exchange was that what gave us confidence this could be done was that in recent years there had been a very substantial improvement in the productivity of UKTI. But if you are looking at the number of staff required to deliver a particular range of activities, they estimate that they have improved their productivity in physical terms by about 50% over four years as a result of better organisation and more focused activity. Having done it, they are confident that they can maintain that kind of improvement.

Q36 Chair: We can talk about productivity, but you talked about reducing the number of trade advisers from 250 to 200. What you are implying is that they were not working effectively before, but you have not given any evidence of that; or you are implying that, notwithstanding the crucial, strategic significance of exporting our way out of the recession, you are cutting down on the front-line people who can do it. If I may use a military metaphor, it is a bit like cutting down on the number of Spitfire pilots during the Battle of Britain.

Vince Cable: The Spitfire pilots in this particular case are the businesses that deliver the exports rather than Government staff who support it.

Q37 Chair: Well, the trainers of Spitfire pilots, if you want to-

Vince Cable: We are talking here of the maintenance staff at the airport for the Spitfires. Obviously, they are important and they make an important contribution, but recent experience as well as advice they are being given is that they can organise themselves in a way that provides a good and enhanced service with less resource. That is the task they are being given.

Q38 Chair: Can you give any examples?

Vince Cable: I can certainly give you the example that in emerging markets, to which we are giving particular priority, British export and investment performance is impressive at the moment; rapid growth is taking place. Of course, that is due overwhelmingly to the activities of the companies involved, but it is also due to the support they are receiving from officials and support staff of UKTI and to some degree, arguably, from political leadership as well.

Q39 Chair: If not at the moment, could you send us some more specific examples of what is being done?

Vince Cable: I am always very happy to give you material. Are you suggesting there are particular contracts that may or may not have been delivered that you feel we can identify?

Q40 Chair: No. I am talking about the way in which trade advisers can be organised to support it.

Vince Cable: That is a perfectly reasonable request, and we can certainly do that.

Q41 Mr Binley: I am a little concerned when I hear that there is a view that Government might be taking over the role of business. I have always thought that view to be totally impossible.

Vince Cable: I thought that was the view from which I had distanced myself.

Q42 Mr Binley: That is why I make the point. Is not the fair analogy that UKTI is rather more like the ops room than the Spitfire pilot himself? Should we not always keep that definition in mind?

Vince Cable: I think we are all struggling to improve this metaphor.

Mr Binley: Thank you very much.

Nadhim Zahawi: Maybe they are the recruiters of the potential Spitfire pilots.

Q43 Mr Ward: I come from the bomber county. You have already touched on the emerging economies, so this is really an opportunity to flesh out new initiatives and support that is given to businesses to take advantage of the new emerging economies. You have already mentioned the emerging economies, but could you flesh it out and give more examples of specific initiatives that are being provided to support businesses to develop?

Vince Cable: The main ones that I see and am involved in are high-level trade missions, which have very much focused on those countries. I have been to China, India, Russia and Brazil with trade delegations. I have been to India twice. The Prime Minister has led a couple of those. The Trade Minister is spending quite a lot of his time on those countries and others. This is not just the big four. Countries like Turkey, Indonesia and Pakistan have to be given proper attention too, but the main way in which Government has become involved is in very active high-level trade and investment missions, and also by welcoming inward visitors, companies and government representatives from those countries.

Q44 Mr Ward: Are we simply benefiting from the growth figures in those emerging economies, or are we doing comparatively better or worse than our competitors in those economies?

Vince Cable: That is a good question. It is probably true that we are maintaining our position in those countries as a result of this increased activity and that other exporting countries are also benefiting. We have one particular advantage in that the exchange rate is more competitive relative to Germany, France and Italy and countries in the eurozone. In recent years the British share in those emerging markets fell, disastrously in some cases. In the case of Brazil we were down to 1% of their imports. We are trying to turn that round but, to go back to your original question, I do not think we can yet claim realistically that we are out-performing other exporting countries in those markets.

Q45 Margot James: You mentioned earlier in the session, Secretary of State, that SME engagement in export markets was much lower than in Germany. For a long time I have been aware that we have a deficient export credit guarantee system in the UK. Since I have been a member of the Committee I have heard complaints from various companies. I want to start by asking you about the new range of products that I am delighted to see the Department has sanctioned through ECGD. This Committee called for new products more than a year ago. How far advanced is ECGD in implementing these new products? It is one thing to announce them, but another to have them embedded in the system and delivered.

Vince Cable: There are a lot of different schemes in ECGD. Forgive me if I lose my way a little. I think there are seven or eight different schemes. We announced three in the trade White Paper. Of those, the bond support scheme is already launched. I think it became live on 1 April. There are two others: support for working capital and the foreign exchange support scheme. That is to support hedging activities by exporters. Both of those are pilot schemes that have been launched but not at scale. Of the three discussed in the trade White Paper, that is roughly where we are with each of those. I have met companies that are already talking to ECGD about making use of those.

In addition, there were various short-term and long-term finance schemes that have either been extended or continued on the traditional basis. The EXIP scheme, of which you may know, is the short-term credit insurance scheme that is being extended in scope. Two schemes were introduced a couple of years ago when the financial crisis was at its height: one was the letter of credit guarantee scheme; the other was guarantee for capital markets support, which has been particularly important for Airbus for example. Both of those were introduced as temporary measures and are now being continued. I think we have got through six so far. There is another parallel scheme that my own department is running, which is an extension of the enterprise guarantee scheme for exporters. There is a subtle distinction here. That scheme is designed for companies that have relatively poor collateral and do not have a track record in security to which banks will not otherwise lend. That is being done outside the ECGD under the BIS enterprise guarantee scheme, as opposed to the export working capital scheme of the ECGD, which is designed for relatively high-risk activities for companies that none the less have very good security. There is quite a range of things.

Q46 Margot James: It all sounds excellent and what is needed. How is it going to be financed? Will there be an increase in the budget for ECGD or, like the UKTI, will it just be expected to achieve more with less?

Vince Cable: It is not subsidised; ECGD is a self-financing organisation. Of course, these are mostly short-term facilities, so there is a lot of rollover involved. It is a revolving fund and essentially that is how a lot of these things operate. One particular scheme that has been discontinued is the long-term fixed-rate finance scheme. One of the reasons it is being discontinued is that it enjoyed an implicit taxpayer subsidy. We did not feel that was appropriate. That stopped operating four weeks ago.

Q47 Margot James: I am aware of that. Although it is self-financing, are you aware whether ECGD will be recruiting additional staff to handle all this additional activity?

Vince Cable: No; there is a reduction in staff.

Q48 Margot James: The reason I ask is that between 2003 and 2009 ECGD reduced its staff numbers from approximately 366 to 207, so any decrease in staff will come on top of a scenario in which there has already been a decrease in staff. According to the British Exporters Association, France, Germany, Belgium and Italy have massively increased their staff since 2003. I am a bit concerned whether on the back of declining staff numbers, all of it being self-financed with no cash injection, this team will be able to deliver the support needed with all these new products.

Vince Cable: You are right about the historic performance. There has been quite a big cut in numbers in the last five or six years. My understanding is that that was achieved primarily through back-office functions and more effective IT systems and it has not really impacted on the front-line staff, who are the people directly concerned with export projects. That is my understanding of the recent history. I have the numbers here, if that helps. I acknowledge that in the business plan it was expected that numbers would fall again by roughly another 23% in the next four to five years. If this becomes incompatible with the expanding range of financial support that I have described to you and which is critical, then ECGD can approach the Treasury and, clearly, they will have a good business case. Obviously, I cannot prejudge that.

Q49 Margot James: It is good to hear that the door is open. I want to turn now to how you intend to promote these new products to business. There is a lot of evidence to show that, because of the lamentable performance in this area in the previous decade, a lot of small businesses, even medium to large businesses, would not look at ECGD and think it relevant to their needs. How will you turn round that impression and generate product awareness and start to get the credits widely taken up?

Vince Cable: I think the strategy at the moment is to have a properly advertised and explained website using the traditional small business networks and chambers of commerce companies. Clearly, if a company is starting to export, it goes through the passport system of UKTI; it will be explained to them that these facilities are available. But it is not just an increase in numbers; it is a qualitative shift, because ECGD has long been occupied primarily with big long-term project finance. These facilities are often based on short-term working capital. It is a shift of emphasis. It may be that people are not familiar with how that operates. I have described in very broad terms how I think awareness will grow, but if people have ideas about how to spread this, the Department will do what it can to put this on the map because we need companies to use it.

Q50 Chair: Perhaps I may focus on the scrapping of the fixed-rate interest export finance scheme. I think you said that that occurred because it involved a state subsidy. My impression was that originally it was scrapped because it was not used that much. Presumably, if it is not used very much, the level of subsidy is not terribly significant in terms of the Exchequer.

Vince Cable: That is true, and that is why it was not really a big issue. I am just trying to remember the figures. I believe the cumulative figure under the fixed rate scheme was £200 million, whereas the overall business over the same period since 2004 was about £12 billion. Therefore, it is a very small part.

Q51 Chair: It has been put to the Committee by the British Exporters Association that in effect the true benefit of this particular scheme is far greater than the figures would imply. The reason for that is that, when lending for international contracts, one of the conditions to be met is that there should be this fixed-rate interest option. Although it often is not used because there are other potential sources of support, if it were withdrawn and a company did not have access to that option, it might well lose contracts because it was not fulfilling the terms of the tendering process.

Vince Cable: I know that argument was carefully considered when judgments were being made about whether to continue it. I think we need to look at other comparative experience. Other countries, such as France, Italy and Spain, have a fixed-rate scheme. Maybe it is based on the logic you describe. But other countries, like Germany, that are very export conscious do not have that except in specific sectors. I think the Germans do shipping, but nothing else in that way. I do not think the Americans have a comparable scheme. The judgment was made that, although there may be particular instances in which that applies, it is not common. That may partly explain the fact that relatively little use was made of it.

In terms of your original question, there are basically two factors that lie behind its demise: one is the fact that it was not being much used; the other was that, if it had been used on a bigger scale, a significant subsidy would have been involved, and we did not think that was appropriate.

Q52 Chair: But given the figures involved, I do not think "significant" would be a way of describing it.

Vince Cable: If it had become significant. Clearly, there is not a large amount of money involved, given the low uptake.

Q53 Chair: I quite understand the logic of scrapping something that is not being used. That would appear to be a no-brainer. On the other hand, if it is not costing very much money and there is a potential, even in a limited area, of underpinning export contracts that would otherwise not be implemented, surely it could be argued that we might as well keep it.

Vince Cable: The point I am trying to make is that it is not costless. If at the margin projects were being attracted in this way, there would be a Government subsidy. As we discovered in other discussions with your Committee, sometimes we have to make tough decisions about Government support for industry.

Q54 Chair: The figure is £200 million since 2004.

Vince Cable: That is correct.

Q55 Chair: Has any sort of cost-benefit analysis been made of it?

Vince Cable: I am sure that the Treasury in making these decisions will have thought about value for money carefully.

Q56 Chair: Can we have sent to us any research that has been done on that?

Vince Cable: I will certainly ask. That is a perfectly fair request.

Q57 Mr Binley: To use a metaphor, we are hardly winning the battle for Britain when it comes to exporting. You will know that our share of world exports fell from 4.4% in 2000 to 2.8% in 2009. That trend is not inevitable, again as you know, because in the same period Germany increased its share of world exports from 8.5% to 9%. I am afraid that all of those figures do not reflect very well on our nation. We even lie behind the Dutch in regard to that particular league table, which is especially surprising. Why does the Department think that happened? What detailed research, if any, has been done by BIS into that phenomenon, and how has that been reflected in the plans for the growth review?

Vince Cable: There are several bits. First, the reason why Britain’s share has contracted is that most developed countries’ share of world exports-you quoted the exception of Germany-has declined largely because of the rise of China, which now takes up a big chunk of the world market; it did not a decade ago. Everyone else has declined relatively. That is one reason beyond our control. The second reason is that for many years one could argue that the British exchange rate in real terms was very seriously over-valued; it has been for much of the last decade. That has made it very difficult for exporters who are competing on price. I do not want to put too much weight on that, because in advanced manufacturing price is just one factor; there is quality, delivery and many other things, but that is certainly an explanation as to how we finished up where we did. There is also probably a general lack of focus on the kinds of things that would make our exports more successful. A further qualification is that I think the figures you quote relate to goods. If we look at services, which include professional as well as financial services and the creative industry, the position is much better.

Mr Binley: That is right.

Vince Cable: In terms of the things to which perhaps we did not pay enough attention, leading to the result you described, there is lack of skills. That has now been highlighted by business to us as a major factor in why they find it difficult to expand. Even the very successful manufacturing exporters say to us constantly that they find it difficult to recruit people. That is why we are focusing on apprenticeships. The fact is that, unlike Germany, we may not have had the same focus on innovation, which is why we are now developing technology centres and launching the first of those. I think it is a mixture of all those different factors.

Q58 Mr Binley: Let me knock down a couple of those. You talk about price. During the bad times it is the high-quality market that does better than the lower-cost market. I am not sure that price is a real component of this particular phenomenon. I repeat my question. What has BIS done to understand that particular phenomenon, and how is that reflected in The Plan for Growth?

Vince Cable: In terms of our analysis, we have an impressive team of economists who analyse the various factors that lay behind Britain’s relative decline. The analysis is in the growth review documents and the trade White Paper. Therefore, we have done a lot of analysis. I do not totally discount the point about price. You are certainly right that in many areas quality is overwhelmingly important, and if you are trying to sell a professional service like law, audit or banking then price may not be the factor, but if you are trying to sell steel, cost and price are critical.

Q59 Mr Binley: I understand that of course. But are you satisfied that the lessons learnt from what has been a very poor performance by UK plc over the past 10 years in this respect have been built into the growth agenda? That is the point I am really trying to make.

Vince Cable: I am satisfied that we have got the right analysis and we are getting the right policies. I am not satisfied that we are anything like where we need to be. It is turning round an oil tanker.

Q60 Mr Binley: I want to move on very quickly to a bit of a hobbyhorse that has been discussed by this Committee before: the concept of ambassadors as salesmen. We were rather disappointed that the SME sector was not well reflected in our list of trade ambassadors. We felt there were a number of people who were there for what they would have been, rather than what they might be or are. I just wonder whether you are aware that Germany had a debate about ambassadors as salesmen 10 or 15 years ago and found that ambassadors were not good salesmen, and they moved away from the model. Are you perfectly happy that putting this sort of effort into British trade ambassadors is worth any potential return?

Vince Cable: To be fair to them, they are people who give up their time to help Britain. We are not talking about a commercial activity. A lot of them are volunteers who have travelled round the world-

Q61 Chair: I think we are talking about Foreign Office personnel.

Vince Cable: I am sorry. You are talking of British ambassadors, not trade ambassadors.

Chair: Yes.

Vince Cable: I have to say that the ones I have met-I have dealt with about 10 of them in various overseas activities-are extremely switched on to commercial priorities. The Foreign Secretary has made it very clear that he sees the Foreign Office as being very much geared to the promotion of Britain plc.

Q62 Mr Binley: I understand that.

Vince Cable: The old slightly more dilettante image you conjure up is very much a thing of the past.

Q63 Mr Binley: However, I deliberately changed the question to the one I wanted to ask rather than the one on my list. If you go back to that question, I would be particularly grateful. I am talking now about trade ambassadors, too.

Vince Cable: The one I started to answer.

Q64 Mr Binley: That is right-which I am much more concerned about.

Vince Cable: The Digby Joneses of this world support Britain as part of their business travel, and the impression I get is a pretty favourable one. We are augmenting that. In addition to the 30 or so business ambassadors there are 500 catalysts, who perhaps are not household names, but are willing to help the British export promotion effort overseas. Those are being recruited to form a network, not underneath the business ambassadors but alongside them.

Q65 Mr Binley: That is interesting information. Could you let us have some more information on that so we can write that into our report?

Vince Cable: Yes.

Q66 Chair: Perhaps we can go on to The Plan for Growth and the grandly titled Public Thematic Review of Regulations. Will this be resourced from your department or out of the Better Regulation Executive?

Vince Cable: It is a mixture. The Better Regulation Executive has a key role in all of this. Is the particular issue to which you are referring the Red Tape Challenge? That is 55

something we are doing jointly with the Cabinet Office. There is quite a lot of crossdepartmental working in which my department is very heavily involved, as is the Cabinet Office, and the BRE provides a lot of technical expertise, depending on which particular initiative it is.

Q67 Chair: This was announced in the growth White Paper. The Government will "launch a public thematic review to reduce the stock of regulation".

Vince Cable: This is what we call the Red Tape Challenge, which is a bit easier to digest than the phrase you use.

Q68 Chair: They are your words.

Vince Cable: I realise that. We have popularised it.

Q69 Chair: How many people will work on the projects, and from where will they be recruited?

Vince Cable: I cannot give you a precise number, but there will be a significant number of officials in the Cabinet Office and BIS. They are in place. As far as I am aware, we are not recruiting new staff for it.

Q70 Chair: Have you no idea of what numbers will be involved?

Vince Cable: I cannot give you a number.

Q71 Chair: I would have thought that assessing regulation and its relevance, impact and so on would be-

Vince Cable: In part, this is demand-led. As you know, we are looking at large numbers of pieces of secondary legislation. There are 21,000 bits, mainly statutory instruments, sitting around. We are inviting comments from business and others about the usefulness of these measures and whether they deserve to continue. Obviously, how much further work needs to be done on them depends on the response.

Q72 Chair: If you have 21,000 pieces of legislation to look at, it appears that you will need an awful lot of people to do it.

Vince Cable: It depends. As I say, it is demand-led. If business groups in particular say that they really want Government to have a close look at hundreds or thousands of these bits of regulation, that is potentially a big task. We do not know how much response we will get.

Q73 Ian Murray: Two specific things are of concern to the Committee with regard to the thematic review to reduce the number of regulations. There have been huge concerns about the proposals to scrap the Equality Act, which is primary legislation and not statutory instruments or regulation. To be slightly local about this, the potential abolition of hallmarking, which is done in Edinburgh, is also something that has caused concern. I wonder whether you would make two quick comments on those specific things that might come up as part of this thematic process.

Vince Cable: Thank you for asking that. There has been some misunderstanding. We have been tackled by people who, quite rightly, are concerned about equalities, to which we are totally committed, and environmental regulation, and say, "Are you seriously contemplating abandoning a lot of key legislation in these fields?" The answer is no. The purpose of the Red Tape Challenge-I have forgotten the more complicated phrase we used originally-is to look at the detail of a lot of the secondary legislation-SIs-that are used to back up these pieces of primary legislation, some of which may well be very onerous and redundant.

To give you an example in the field of equalities, there is absolutely no question of challenging the principles of equalities in gender, disability, race or whatever. That is absolutely fundamental to the Government’s commitments. We are not opening that at all. But there are specific bits of equalities legislation that we have already decided not to proceed with, for example dual discrimination procedures and third-party harassment, where a company does not have any control over things that have taken place outside it but may have taken place in its supplier companies. We felt that those pieces of legislation were not needed to support the equalities legislation, but I want to be clear-because your question is absolutely fair and other people have misunderstood it-that we are not challenging the primary legislation on equalities or environmental factors.

Q74 Ian Murray: Would you comment on the example of hallmarking?

Vince Cable: I was not aware of that particular case, but I will look at it. Hallmarking is an important part of the establishment of quality, and I certainly would not want to question that.

Q75 Simon Kirby: Thank you so much for clarifying that issue. This is more a statement rather than a question: the Red Tape Challenge is vital if businesses are to thrive and we are to achieve the growth that we all want to see. As a former businessman, perhaps I may reiterate how important it is to businesses that we free them and get rid of an awful lot of red tape. I can understand Mr Murray’s concerns, but there is an awful lot of very unnecessary legislation.

Vince Cable: The so-called Red Tape Challenge is just part of a much broader approach to dealing with regulation. As announced in the Budget, there is a moratorium on new regulation for SMEs and start-ups; there is the one-in-one-out process, which is now well established and is reducing the number of regulatory "ins" as we call them and the cost of regulation; the specific measures that we have stepped back from, including those in the equalities legislation that I have just described; the readout of European legislation to avoid gold-plating; the interpretation of HSE rules and the Lord David Young work as well. A whole series of initiatives has been taken on the regulatory front.

Q76 Chair: Earlier you said in effect that it would be demand-led. I presume that the review Your Freedom, which was launched last July to allow the public to suggest ideas for stripping away regulation, is part and parcel of this approach. What sort of response have you had?

Vince Cable: I think that what you are referring to is the Cabinet Office initiative that related to the workings of Government. That was taken as a background to the spending review to come up with ideas about how Government could be made more efficient through small changes. My understanding is that a great many of those suggestions were taken up, but I am sure my colleague Francis Maude can tell you more about the effects of that.

Q77 Chair: Could you send us further information on that?

Vince Cable: Yes, surely.

Q78 Rebecca Harris: I would like to make very clear my enthusiasm for any deregulation you can bring into this because I have been in business myself. Successive Governments have talked good talk on this, so we are very keen that this commitment and resources committed to it will be successful. As an enormous amount of costly regulatory burden on business emanates from the EU, would it not be sensible to commit some of these resources to having battles with the European Union on things like persuading it to cost its forward legislative programme, or to agree to adopting external scrutiny of its impact assessments and that kind of thing?

Vince Cable: You are right that a very substantial proportion of regulation comes through the European channel. A lot of it is very onerous; it is not properly thought through and there are costs associated with it. You are right to say that we should be devoting more effort to stopping it at source rather than dealing with its consequences downstream. That is very much part of the current approach. There are now a significant number of like-minded countries in the European Union that share our concerns-the more economically liberal countries of northern Europe such as the Scandinavians and the Germans. Some European countries that now find themselves in very serious financial difficulty have been forced to think more carefully about the costs of regulation. The eastern European countries that came out of communism are probably instinctively more sympathetic to our way of thinking on these things, so there is a changing centre of gravity within the European Union that makes for a much more critical approach to regulation. We are trying to push within the European Union for tougher processes that include what you describe, i.e. a proper impact assessment before new regulation is brought in.

Q79 Margot James: Should the EU be required to consult on those impact assessments? They should have them, but can we persuade them to consult member states on the impact assessments?

Vince Cable: That seems very sensible. I am not involved on a day-to-day basis in the way the European Union does these things, but I have quite a lot of contact with Michel Barnier, the single market commissioner, who is very alive to the regulatory costs and the impacts on small business and is looking for ways to make the single market work in a very deregulatory way. Therefore, we want to take on board the kinds of points you have made.

Q80 Margot James: One thing I picked up from the previous Government was that many of the smaller markets in the EU, particularly the new entrants, did not really push back on the EU when it came to business regulation. They often do not turn up to meetings, apparently, so there is not a huge push back from member states, which is one of the reasons why we have this avalanche of regulation. I wonder what you can do to try to galvanise other states, or do you share the view held by some people that the reason why these countries do not bother is that they have no intention of implementing the regulations in the first place, unlike ourselves?

Vince Cable: I think the latter is widely believed, but when you look at the league tables of compliance they do not quite justify the conclusions you draw. We tend to be mid-table when it comes to the implementation of European Union regulation. UKREP in Brussels is very conscious of the need to do exactly what you say, which is to create coalitions of people standing up to unnecessary and cumbersome regulation. I can speak only from experience of one or two examples. We have fought-my colleague Ed Davey in particular- things like the working time directive. We see that as highly problematic for the UK and have worked very hard to build up support in the European Union for a more liberal approach to it.

Q81 Ian Murray: I am really assured by what you said about the Equality Act in terms of the Red Tape Challenge, but could you ask your officials to look at that website? It says in the equalities section, "The Equality Act 2010 can be found …", and the very first question posed is, "Should it be scrapped altogether?" I fully accept your reassurances that that is not the intention, but people may have the perception that that is the case. I wonder whether you would look at that particular aspect of the wording of the website.

Vince Cable: You are quite right, and I regret that. It should not have gone out in that form. In the last few days a corrective has been put on the website making it very clear that that was not the intention.

Ian Murray: That is excellent. Thank you.

Chair: Perhaps we can turn to competition policy and public sector contracts.

Q82 Rebecca Harris: Clearly, your plan is to improve the access of SMEs in particular to Government contracts. I know that the Cabinet Office is also working on voluntary sector organisations getting more contracts and that kind of thing. Do you know the current figure for the percentage of contracts now being won by SMEs? When do you hope to reach your target of 25%? What is the time frame?

Vince Cable: The objective is 25% of total market share. We do not have a running metric of how we are measuring up to that. So far, the emphasis has been on trying to improve the process; to scrap or, in the short term, greatly simplify the pre-qualification questionnaires; to have a contracts finder to help SMEs find their way through the system; to deal with the two-tier code problem where we have TUPE regulation. We are trying to improve the process, but I cannot give you a simple one-figure answer as to how the share of SMEs is currently changing. We have the relative performance of different Departments taken overall, but that can be a bit misleading because there are arm’s-length organisations as well as the Government Departments themselves. A lot of effort is being put into improving the process, and again Francis Maude and the Cabinet Office, who are in charge of this, can give you a much fuller answer.

Q83 Rebecca Harris: Therefore, the 25% is an aspiration; it does not have a deadline or any target on it.

Vince Cable: It is an aspiration.

Q84 Rebecca Harris: Who will be running these new SME surgeries? Will they be financed by the private sector or your Department?

Vince Cable: My slightly tentative response-because I do not know the answer-is that I think it is the Department. There is a special representative called Mr Stephen Allott from Government Procurement who is helping to organise the surgeries. That is my understanding of it.

Q85 Rebecca Harris: They have not started yet.

Vince Cable: I cannot tell you how far that process has gone; I would need to let you know.

Q86 Rebecca Harris: Is it right that it is led in part by the Cabinet Office?

Vince Cable: That is right.

Q87 Mr Binley: My concern lies particularly with local Government. Many SMEs deal with local government rather than national Government in Government procurement contracts. I have been battling with my local councils for three years. I have had a letter from a company, Ainge & Sons, that has been servicing local government as builders for 50 years. It now finds itself cut out. The remark it makes, which horrifies me, is, "The marking system used by Northampton Borough Council is geared towards the interest of large national companies and discriminates against SMEs such as ourselves. This situation must be mirrored hundreds of times over the country." There is a real problem with local Government hiring utility companies to handle their procurement, and the utility companies using their sister companies to do the work. It verges on being scandalous. Can you give me some words of comfort that I can write back to my constituent?

Vince Cable: I am not sure about the comfort. It is certainly a big issue. I think that a third of all public sector procurement goes through local Government. The practice you describe probably reflects the fact that local councils are trying to do two different things at once: they are trying to cut their costs of procurement, because they are under cost pressures-it is quite right that they should be more efficient-but they are also under pressure to help local business. These two things may pull in opposite directions. Obviously, I am not comforting you, but in a way it is not the job of central Government to instruct councils on how to get that balance. All we can try to do is make sure they do not introduce unnecessary regulation that gets in the way of small companies. The sense I get is that a lot of councils round the country now understand that in the long term it is important for their own self-interest in terms of their business rate base, among other things, to have a thriving local business community and they should help their local companies, but they have to balance that against getting the cheapest deal.

Q88 Mr Binley: Forgive me, but that is not the sense I get. There is a lot of concern among small and medium-sized businesses that their local authorities do not treat them fairly or well. I understand that you do not have legislative control, but you have a pretty big boot. I wonder whether you can put it in a little bit and tell us how you might urge local authorities to play their part in this particular objective.

Vince Cable: I will certainly communicate with Mr Pickles and Mr Maude that this is what you wish to have done.

Chair: I would recommend you look at finditinsandwell.co.uk as a very good case study.

Q89 Rebecca Harris: Obviously, a cultural change is needed right across the public sector; it is not just a cross-departmental thing, on which I hope your Department will be leading. To ask a technical question, how was Stephen Allott selected as the special representative? Do you know whether it is a full-time or part-time role?

Vince Cable: Again, I cannot give you the detail. These are good factual questions. Obviously, we will take note of them and let you know how exactly that is working.

Chair: We have a couple of questions on corporate governance, particularly takeovers. I should emphasise that we are likely to do a rather fuller inquiry into this shortly.

Q90 Mr Binley: I have two very quick questions. First, when will you be publishing your findings on the Takeover Panel proposals, which I believe are still with your office? Secondly, are you putting as much weight as you possibly can behind the view-best described by Peter Cadbury of Cadbury fame-that the City code in respect of hostile takeovers as it is presently drafted operates to the considerable advantage of the offerer and unfairly against the interests of the offeree, its employees and the wider interests of the company. He believes that in such situations the simplest and most effective way to remedy this imbalance would be to disenfranchise all shareholders who acquire shares during an offer period. That seems to have popular support among sizeable numbers of companies. I wonder whether you are willing to make any comment at this stage about what your view might be.

Vince Cable: I think that when I first appeared before you, we talked about long-termism, takeovers and Cadbury.

Mr Binley: Yes, we did.

Vince Cable: I am very much in sympathy with the spirit of your question. Let me just set out roughly what has happened. When I first came into office there was a Takeover Panel review of the takeover process. I made it fairly clear that I thought their recommendations at that stage were rather insipid. They have had a fresh look at this and have come up with proposals, some of which are quite significant, making the whole fee system much more transparent and, perhaps more crucially, reducing the time between the announcement of a takeover bid and an actual bid to prevent a long period in which speculative activity can take place. These are fairly substantial proposals that they have made as a self-regulating body. Those are now being consulted on. When we see the products of that consultation, we will in turn give some indication about whether we think that is sufficient or whether other things can be done.

On the specific point you make about disenfranchising shareholders who have come into the process very late, we have looked at this very carefully. There are real practical difficulties about creating two categories of shareholders, but I still have an open mind as to whether that can be done. Suffice it to say that we have looked at it and substantial technical objections to it have been raised as a mechanism for dealing with this problem.

I think you implied that the takeover system worked in favour of the offerer rather than the offeree. The research I have seen suggests that in many cases there is a reduction in shareholder value in a takeover, and it is the offerer’s shareholders who experience that negative factor. Indeed, there are people who argue that, if there were to be a reform, it should be in the direction of requiring that the shareholders of the offerer should approve as well as the shareholders of the offeree. That may not be practical, but that would be the logic of it.

Q91 Mr Binley: We are talking particularly of hostile bids. Does that change your view in that respect?

Vince Cable: In practice, it is difficult to distinguish between hostile and non-hostile; it is a subjective judgment, isn’t it?

Q92 Chair: I believe that the deadline for responses to your consultation on corporate governance is 27 May. An official of your Department has indicated that the next steps will be announced in the summer of 2011 and, rather oddly, in a speech by the Secretary of State at the Association of British Insurers conference on 22 June. Can you give a commitment that Parliament will be informed beforehand?

Vince Cable: Certainly, if there are any substantive proposals Parliament will be the first to know. I think that the reference to that speech is a way of summarising where we are with this rather complicated set of ideas. I had already given Parliament a preview of this through the All-Party Group on Corporate Governance. I think some of you were there. Different streams of consultation are taking place, and the one we have already talked about is concerned with takeovers. There has already been a consultation on the question of long termism in general, and the extent to which British institutional investors have a long-term perspective. At that meeting I summarised the outcome of the public consultation; the fragmentation of shareholding; the lack of transparency; and concerns about high levels of remuneration. We are currently considering whether we should launch a formal consultation on particular proposals arising out of that.

Q93 Chair: Perhaps I may point out that nobody is a greater supporter of all-party groups than myself, but they are not part of the formal process of parliamentary accountability. If you have sufficient information to put before the Association of British Insurers, why do you not have sufficient information to put before Parliament?

Vince Cable: If there are specific and substantial policy initiatives, clearly we must respect Parliament above all, and they will take the form of a parliamentary statement. My view about the ABI speech is that it would be a summary of where we are in terms of these various streams of work, but if there is anything substantial I can assure you it will be put before Parliament.

Q94 Chair: Why can’t Parliament have this summary?

Vince Cable: I will take your thought away. If indeed there is anything substantive I can give you an assurance that Parliament will be the first to be told.

Q95 Chair: I turn to the digital and creative industries. How will IP attachés be resourced and how many of them will there be?

Vince Cable: I will give you a fairly skeletal answer to that. The Government’s Intellectual Property Office is creating a network of people who, either through UKTI or our embassies, can help defend the interests of British companies overseas where intellectual property rights are a particular problem. The creative and digital industries are a particular area where this is crucial, but it is not just them; there are patent, copyright and trademark issues affecting other sectors of the economy. There are countries, particularly the big emerging markets, where intellectual property rights are either not acknowledged or not enforced. The idea of having these ambassadors is to have a group of expert people available to help British industry and business in those countries when these problems arise.

Q96 Chair: How will they be chosen, and where will they be based?

Vince Cable: I think that if we are getting into detail, I will have to give you a proper written answer.

Chair: That is fine.

Vince Cable: They originate in the Government Intellectual Property Office, but I will write to you about the appointment and allocation process.

Q97 Chair: You said that the Government would consider simplifying payment for copyright materials and freeing up orphan works. How might you do this?

Vince Cable: It would be in response to the report of Professor Ian Hargreaves. As you know, that is advanced and will be made available very soon. That focuses on that issue and other copyright and intellectual property issues, giving us a basis for formulating policy. We are waiting for him.

Q98 Chair: Can you give us any idea when this is likely to appear?

Vince Cable: I believe that it is imminent, but I cannot give you a date.

Q99 Chair: Let us turn briefly to professional and business services. Has the UK implemented the services directive in full?

Vince Cable: Again, I cannot tell you that. I will certainly need to let you know. Is this in the context of the single market?

Q100 Chair: Yes. The departmental structural reform plan mentions December 2011 as the deadline. What is the reason for that?

Vince Cable: I think the answer follows from the previous one. I will simply need to give you detail on it.

Q101 Chair: There is one final question. We have been told that the higher education White Paper will appear in June. I believe that originally it was supposed to appear in January, but now there appears to be more and more reference to its being in the summer. Can you tell us when it will be published?

Vince Cable: I cannot give you a date, but I certainly know because I am involved in the discussions on it that it is at a very advanced stage. I believe that there is a debate in the House this afternoon, and the Minister for Universities and Science will be on his feet. I am sure that an intervention might elicit a more specific answer than I can give you now.

Q102 Chair: Are you still committed to June?

Vince Cable: No, I am not. There is no point in my giving you a date. It is certainly very close. I am sure that is realistic, but I do not want to promise a specific date and then not be able to deliver it.

Q103 Chair: But we have been told June before. You are saying now that it may not be June.

Vince Cable: We are working to a very early delivery of the White Paper, but I do not want to give you a date now.

Chair: It may not be June. Minister, thank you very much. I will allow you as well as my colleagues to get to parliamentary questions.