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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 823-i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Business, Innovation and Skills Committee

Lord Heseltine's Report: NO STONE UNTURNED IN PURSUIT OF GROWTH

Tuesday 11 December 2012

Rt Hon the Lord Heseltine of Thenford

Evidence heard in Public Questions 1-35

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Oral Evidence

Taken before the Business, Innovation and Skills Committee

on Tuesday 11 December 2012

Members present:

Mr Adrian Bailey (Chair)

Mr Brian Binley

Paul Blomfield

Mike Crockart

Caroline Dinenage

Julie Elliott

Ann McKechin

Rebecca Harris

Mr Robin Walker

Nadhim Zahawi

________________

Examination of Witness

Witness: Rt Hon the Lord Heseltine of Thenford, gave evidence.

Chair: We are slightly early, but given that we have only got you for a short time, I propose that we start now to make the most of the time available. Can I formally welcome you, Lord Heseltine? Thank you for agreeing to address the Committee and answer our questions. Of course you need no introduction, but for transcription purposes, if you could introduce yourself, that would be helpful.

Lord Heseltine: Yes, I am Lord Heseltine. I am a former Deputy Prime Minister in John Major’s administration.

Q1 Chair: Thank you very much. I am going to open the questioning. Your report, I think it is fair to say, has been of huge interest. It has been reported as opening up a split in the Government between the "dominant centrists" and yourself, particularly in the context of the Growth and Infrastructure Bill, with tension between your approach, which is basically a localist approach, and the Growth and Infrastructure Bill, which is essentially a centralist approach. Do you think the two approaches are irreconcilable?

Lord Heseltine: No. I think that they need reconciliation, building on the relative strengths and priorities of both central Government and the local economic centres of our country. I do not find it any way difficult to see how to do that and, in detail, my report sets it out. There are things that only central Government can do-major roads, for example, airports, ports and railways-and there are things that would be better initiated at the local level and, again, my report sets out many of these things. They are not exclusive. In BIS, for example, you have sectoral responsibilities, which are national, and then you have the local economic initiatives, which have to fit in with the policies of central Government. We are talking about a sophisticated partnership process.

Q2 Chair: This was not in the Growth and Infrastructure Bill, but I know there was considerable concern that LEPs and the local business community did not have a formal say in the revised planning processes. Do you not think this heightens the tension and is something that needs to be remedied?

Lord Heseltine: I think that the essence of my report is that we need to stimulate economic activity wherever we can, and that the more you can enthuse those who have local knowledge based on their experience on the ground in order to contribute to that process, the more you get choice and competition; the more you get enthusiasm; the more you get a relevance to local economic circumstances; and, put in rather general terms, the more you get like every other capitalist economy.

Q3 Chair: Do you think the Government is taking your recommendations seriously? There has been some speculation that is basically just going to be shelved.

Lord Heseltine: I do not think anybody could believe that after the Autumn Statement, when the Chancellor has explicitly said that he is going to move towards a single pot and, secondly, that there is to be a detailed and full response to my report in the spring of next year, which is three months away. If I may make a personal point, what is the point of asking someone like me to do a report of this sort if you are going to shelve it? It is not as though I arrived from Mars. I have been around for, many people would say, too long, and my views are well known; my approach is well known; it has been articulated in Government post after Government post. So in asking me to do it and then giving me a very talented team of officials-one from each Government Department-you are not exactly charting new ground. You know what will come out of the product.

Chair: I think you have articulated very well the sort of conundrum that we are trying to understand: that is why the Government did it whilst, at the same time, appearing to pursue other policies that are contradictory to it.

Mr Binley: My Lord, it is good to see you. We first met, would you believe it, in 1966, when you had just been elected in Tavistock and I was the Young Conservatives organiser in the West Country. That is a long time ago.

Lord Heseltine: It is miraculous.

Mr Binley: We are both still here.

Lord Heseltine: Here we are.

Q4 Mr Binley: Can I refer to that element of your report where you said that "The message I keep hearing is that the UK does not have a strategy for growth and wealth creation." Is the Government’s Plan for Growth fit for purpose?

Lord Heseltine: The Government are a bit cross with me for saying that, and I think they have some cause on their side, because they do have a growth strategy-it is set out in a document that has a green cover, and I suppose it must be a yearplus since it first appeared. In traditional terms, it deals with a lot of economic issues, fiscal policies and regulatory issues, and it would be seen legitimately by the Government as their growth agenda. It does not in any way undermine the fact that, wherever I went, people said there isn’t a growth agenda. Partially, of course, they are saying that there is nothing that meets what they want as a growth agenda; and partially, it reflects the fact that, to many people-and this would include myself-a growth agenda is much more comprehensive across all Government Departments than the traditional Treasury/BIS Department response. That is where the dilemma lies. I recognise the Government’s legitimate criticism in saying what they did about that observation, but I stand by the observation in the context I used it: that, in fact, I do believe we need, at central Government level, a growth agenda which is much wider and more comprehensive than the traditional approach that the Government had adopted.

Q5 Mr Binley: Does that suggest, then, that you think the Government has not done enough to communicate its vision with regard to the strategy for growth?

Lord Heseltine: If I was forced to say something about that, I would say that the Government has-well, not just the Government; there has generally been a different understanding of the dilemma this country faces. I think the Government’s first approach-the traditional one, which is what any other Government did or would have done-has not been able to satisfy the stark circumstances that we, as a nation, face. The traditional levers-even devaluation-have not really worked. Confidence in the economy has not been restored. How can it be when all our principal markets are either slowing or stagnant, and where confidence in the investing constituency is very limited and is likely to remain limited until the marketplaces they serve recover? This Government-and, I think, a much wider constituency-has looked over the brink of Britain’s future and realised there are some very searching questions one has to ask, and that led, summing it up, to the Prime Minister, in the City a month or so ago, saying he believed in an industrial strategy. I have not heard a Prime Minister in a Conservative Government use those words in decades.

Q6 Mr Binley: If you had been Chancellor, would you have attempted to inject more demand at an earlier stage, or do you think that that would not have been possible?

Lord Heseltine: I think that it was well summed up by the former Chief Secretary: there’s no money left. I accept that view. Where is it going to come from? You are either going to increase taxes, which has the effect of choking off demand, or you are going to borrow more money, and that has the effect of increasing the debt, potentially increasing interest, and potentially increasing inflation. There are no easy ways out of this situation, but there is one way out which I do believe the Government has appreciated and which has a track record, and that is to get more value from the money you can afford. That, basically, is gearing.

If you look back to when we have done this, the proven success underlies the proposals that I made. It began with the urban development corporations of 1979. Coincidentally with that, there was the gearing associated with urban grant: for every pound of public money you got to deal with dereliction, you had to show what would be added to it by, for example, house builders. That led on to the more ambitious scheme called City Challenge, which was a scheme targeted at the most destitute parts of provincial England, and we got serious gearing: £5 of extra money for every pound of public money. The Regional Growth Fund has had exactly the same consequence: for every pound of public money, we have got £5 of private or additional money.

The whole philosophy that I have pursued over those 30 years is to say that, if you did that on a bigger scale, I would not say that the consequence would be proportionate, but it would have the same process of gearing in more activity and more economic investment. You take the central Government money that is already in the public expenditure accounts-I list something like £60 billion over the review period-and you say that, instead of allocating that functionally on a pound-for-pound basis, you create a competitive process where you invite the LEPs, in this case, to say, "If we get part of that £60 billion, this is what we will do locally to add to it." That is where the extra cash comes from.

Q7 Nadhim Zahawi: I have just a couple of questions: one is about your view of the interventionist view versus the Lord Lawson view, which is just, "Lower corporation tax, get out of the way and let the market decide." Where do you think the Government sits currently between those two views?

Lord Heseltine: Oh, I think that that is at the heart of the debate, and it would be misleading to say, "The Government sits in A, B or C position." Each Member of the Government will have their own views and they will vary. Nigel and I sat in the same Cabinet for some considerable time and we would not exactly agree about this particular matter, but we were still part of the Cabinet, and the same position would exist today. Of course, he thinks I am wrong, and you will not be surprised to hear I think he is wrong.

Q8 Nadhim Zahawi: That is a very good non-answer about the Government’s position. Thank you very much.

Just one more if I may. You talk about having more engagement from Departments, so it is not just the usual response from BIS and the Treasury as to what that growth strategy or industrial strategy looks like. I understand that, so let us take the Department of Health. How do you really change behaviour within that Department among people who have a day job that is totally focused on what they have to deliver? How do you get them to start thinking about leveraging some of that money that they are spending on growth?

Lord Heseltine: Last night, I sat and watched a fascinating television programme in which the health service were working with 10,000 cancer patients on examining their individual DNA in order to work out if there was any correlation between certain types of treatment, as I understood the programme. I said to myself, "That is exactly what comprises a comprehensive growth strategy." I think, personally, I had given an example in which the client group within the health service I chose was the elderly-the elderly are more numerous and will be around-and it was looking how you could keep them in their own homes longer. That is good for them and good for the health service, and it potentially could involve the electronics industry in developing even more complicated systems of local and personal monitoring. That is another example, but there are two examples. The Moorfields Eye Hospital is a third example: why just Moorfields?

If you start thinking about that and say that each Government Department should just sit back and say, "We know what our day job is but are there things we could be associating with that? Are their partnerships we could be creating that could enhance the purpose of our Department?" my view, comprehensively, is that the answer is yes.

Q9 Chair: I am coming back to Brian now but, in the context of your previous reply about City Challenge, as a representative of a constituency that benefited from City Challenge, I suppose I should say thank you. Secondly, the point was made afterwards that, if we had had twice as much money for twice as long, the transformational effect in the area would have been absolutely incredible. It does underline the point you were making.

Lord Heseltine: If I may say so, Mr Chairman, you should be sitting here.

Chair: No comment.

Q10 Mr Binley: Your previous answer to my colleague, Nadhim, suggested that there may be a lack of ability to show initiative in the sense that you are talking about, and to go beyond the day job. Can I ask if Whitehall is shielded from the impacts of negative growth in a way that could result in inertia and a lack of urgency within the Government? Does the Government have the skill sets needed to develop the sort of additional activity that you are calling for? If it does not-and I fear it does not-how do we train Ministers? We expect them to do it almost without any training at all.

Lord Heseltine: There were quite a few questions rolled into that one, and each of them is important in its way. I would not answer the question just in terms of Government. The general approach that I think we adopt in this country is unlike that of any other capitalist economy that I know. It is too centralist and too amateur. It is amateur in the sense that the official world is very largely a generalist civil service, without expertise and without experience outside their own activities. They are very hard working and very conscientious people and I have always found that you can achieve amazing things with them, provided they are led. That is absolutely the right way: we are not looking for a civil service to run the country; we are looking for Governments to do that, whichever mandate they happen to have. However, there is a great need, in my view, for much more professional expertise in the civil service.

Of course, Ministers collectively should have an all-embracing strategy that should, in my view, concentrate on growth-not to the exclusion of their day job but in addition to it. I set out in my report a machinery to achieve this, and basically it consists of Prime Ministerial leadership; without that, nothing happens.

Chair: We are coming to that a little later.

Lord Heseltine: Secondly, you need an overall statement of what your growth strategy is. Thirdly, you need a response from individual Departments as to how they will work into that national growth strategy. Next, you need a creative tension inside Government to make sure that each Department is doing what it said it would do-in other words, just internal management/creative processes of the sort that are built into any private sector company. Then you need the same professionalism in the localities upon which you are relying for greater input, and that takes you to look at the LEPs and it takes you to look at the chambers of commerce.

Q11 Mr Binley: One final question, my Lord, and I do thank you for your answers: you say in your report that "Whitehall is dysfunctional", and you alluded to that in your response to my previous question, but you also say it is "neutering local leadership". I wonder how you would change that situation. You have given me part of an answer to that but I wonder if you wanted to elaborate a little more. Do you shove more decision-making down the line? How do you do it?

Lord Heseltine: You do two things. First, you analyse the problem, and the problem to me is monopolistic functionalism. Once you get those words into one’s mind, you realise where I am coming from. You think of the central Government Departments, and their names reveal all you need to know. They are doing health, they are doing education, they are doing transport, they are doing local government-whatever it may be. The real challenge to me is to ask: how do you build the economy of Manchester, Liverpool, Leeds, Newcastle or Plymouth? That question is not asked. The preoccupation and, indeed, the career structure of Ministers is how they can do well in their functional process. You start asking basic questions.

I can only ever remember one occasion in Government when I attended a meeting about place, and that was in 1981 after the riots in Liverpool; otherwise, they were all about Departmental monopolistic functionalism. I do not believe that that is the right way to stimulate local activity, and I believe it has a neutering effect, because such is the monopolistic power of those functional Departments that they are replicated in the municipalities as well; you have the Ministry of Transport and your County Surveyor; you have the Department of Education and your Chief Education Officer. The relationship is vertical, and at a municipality level, there is not this interrelationship of the sort we are talking about.

The way I suggest we move from where we are to where I think we should be is to build on the past experiences I have had-City Challenge is the easy one-and to simply say to the local people, however you define that, "We have this much money. You tell us what you would do and what you would add to it if you initiated where the money was spent, not us." That is what every other advanced economy does and it is what I believe we have proved would work in this country. The trick, of course, is to do it, and then you do come back to the points that have been raised: who is in favour and who is against? You will not be surprised by the answer to that question: anyone who is losing money is against and anyone who is trying to get the economy moving is for. It is not rocket science.

Q12 Mr Walker: Lord Heseltine, you have run a number of Government Departments in your time, and you have also run very successful businesses. I was just wondering: in your experience of running large Government Departments, do you find their business plans were fit for purpose?

Lord Heseltine: They have not got business plans. No one knows what is going on in Whitehall. There is no way of finding out. It is as stark as I have said. Lord Browne, the senior non-executive director, ex-BP, has said similar things. It is absolutely right: you can find out how much the total bill is-of course you can find that out-but, if you want to know how many people are doing a particular function, what the objectives are, what the measurement of those objectives is and who set those objectives, it does not exist. You cannot cost objectives and output in the way you can in the private sector.

Q13 Mr Walker: You said to the Public Administration Committee last week that it was unacceptable that we have Ministers with no knowledge of great swathes of their Departments. What do you think could be done about that?

Lord Heseltine: You just put a management information system in and you have creative tension to ask questions about it, which I did. It is all in my report. I just set out the template for what you should do. Indeed, I’m pretty sure-in fact, I know I did-I set out a timetable in which it should be done, so it should. We did it, then every time I left the Department, it disappeared.

Q14 Mr Walker: I was going to ask: do you think there is institutional resistance in Whitehall to that?

Lord Heseltine: Yes, of course.

Q15 Mr Walker: Why do you think that is?

Lord Heseltine: Because the more that you know, the more criticism you can deploy and the more informed the debate. To oversimplify, if you have a Department that is responsible for, we will say, community welfare, that is a jolly nice thing to be doing-everybody is in favour of community welfare. You say, "Let us have some cuts," and before you know where you are, you will have the bleeding stumps of community welfare paraded across the national press-Government are villains, descending like Mongol hordes on the most underprivileged-and everybody will back off because they do not want to lose votes as a result of this villainous policy. If you could actually get to see what the people in the community welfare department are doing, you would find there would be lots of economists collecting figures and storing away facts and figures so that people like yourselves can ask parliamentary questions, and impose a huge cost on the public bureaucracy as a consequence, and you might come to the view that you did not need those answers in the first place, so you could do with fewer economists-but you cannot find that information.

Q16 Mr Walker: Would you also agree that there is a problem with different Government Departments working within their own silos and not working together? I am interested in your experience of the Regional Growth Fund and the newly created LEPs sitting between two Government Departments. Do you feel that that has hampered the ability of that organisation to do its job as well as it could?

Lord Heseltine: The Regional Growth Fund provided no such problem because, having agreed with Ministers the remit, which was that we would create private sector jobs in those areas most adversely affected by the cuts, it was left to the committee of which I am chairman to make recommendations and, indeed, to stimulate the bids across the country. It was completely within one framework of control. We made recommendations; then there was a team of Ministers collectively looking at those recommendations, and either adding or subtracting, as they saw fit. By and large they supported the recommendations we had made. I believe the system worked as well as it could possibly have done.

When you come to LEPs, that is a different story. Basically, having created the LEPs, the Government, at that stage, felt it had made a significant step forward towards stimulating local enterprise and local economic activity. In practice, when one started looking at the detail and started asking questions about the extent to which more responsibility could be moved in that direction, the inadequacy of the capability became clearer and, of course, it was a patchwork quilt: some LEPs had made significant progress; others had not made any progress at all. There were LEPs that actually did not believe in making more than minimal progress. This is not a criticism; they thought they could do the job perfectly well with a very light touch, using the resource of local authorities. If you take the more ambitious programme, which is now being pursued by the Chancellor, you really have to have a stronger LEP presence.

The story is exactly the same with chambers of commerce. For all my political life, this localism/centralism debate has gone on, and there are two vehicles: there is the private sector vehicle called the chamber; there is a public sector vehicle called local government, to which you could devolve more opportunity, power and responsibility. Actually, central Government has done exactly the opposite over my lifetime, again. More and more, they have taken powers away or simply not given them to these organisations. The argument is always the same: "They are not up to the job. Therefore, we had better do it ourselves." An example is the Housing Corporation in the 1960s under Keith Joseph. All the way through, you get this accumulation of central power-circulars, ring-fenced grants; they are all part of the same thing-on the basis that you cannot trust either the chambers or local government. And LEPs then follow into the same thing. That is precisely the wrong solution.

The right solution would have been to say, "We must make these organisations fit for the job," which is what every other capitalist economy has done. Again, if you had the time to glance at the annex to my report-not the report itself, but the annex-which looks at the support for small businesses overseas, characteristically we are in an amateur world. The Prime Minister, visiting India and Brazil-two of the target economies-discovered there was not even one British chamber of commerce in those two growth markets. Just compare that with what the Americans or the Germans are doing and you will realise why I treat it so seriously. The big point, however, is that we have analysed a weakness and said we therefore need centralism. What no one ever does is then put a slide-rule over the central performance and see whether it is any better done centrally than it would have been done locally.

Q17 Ann McKechin: We have talked about the silo tendency within Government today, Lord Heseltine. We interviewed the Secretary of State about six weeks ago on his annual report and, when we asked him about the Growth Implementation Committee-one of the new subcommittees of Cabinet-he said that nobody in "Government or anywhere else would imagine that Cabinet committees drive economic growth". You have made a number of suggestions about better co-ordination between Government Departments and how we try to break down the silo. Have you any other suggestions about what Government should be trying to do at Cabinet level, at No 10, in trying to drive that agenda?

Lord Heseltine: My report sets out in very clear terms what they should do: a Prime Minister-led national strategy; an individual departmental strategy, compliant with the national strategy; a monitoring unit in Government, to make sure that what is promised is delivered; and then a significant shift of initiative to the LEPs, to get a place-based set of proposals rather than functionally imposed, individual proposals.

Q18 Ann McKechin: You have mentioned things being set up ad hoc by central Government to try to cope with gaps, rather than trying to resolve the problem at the local level. Would you see a model that is quite a consistent, long-term model within Cabinet?

Lord Heseltine: I think my model is based on many years of having been there. Of course, Government has to have ad hoc responses to unpredictable and crisis situations-of course it has-but what it should not rely on is ad hoc-ery as a strategy.

Q19 Ann McKechin: Just very quickly, Annex F of your report sets out a management information system. I just wondered whether you think that the current implementation updates on the Government’s Plan for Growth match that standard, or do you think they need to be strengthened?

Lord Heseltine: I have not seen anything that matches the quality of management information system that I believe to be necessary.

Q20 Nadhim Zahawi: Lord Heseltine, we reported in November 2010 that a key test for the new LEPs will be "the extent to which they learn from both the successes and the failures of the RDAs". Have LEPs improved on the work done by the RDAs? How do you recommend they do so in the future?

Lord Heseltine: I do not think they have had time to be judged. The RDAs came into existence because in the 1990s I persuaded my colleagues in Government that we would take the functional offices of central Government based, we will say, in Manchester, Leeds or Bristol, and co-ordinate them into a unified process. This was the attempt to try to get a place-based response as opposed to a lot of individual, functional responses. Colleagues agreed with that, and that is what we did. The next step-this is where it started to go wrong-was to try to turn what was essentially the eyes and the ears of the central civil service and the Government into a regional body, which it was never intended to be, and then to give it more powers of a grandiloquent nature, like strategy, spatial planning and regional this, that and the other. They got more and more powers, responsibilities and money, and the reaction was predictable: someone said they had to go.

I have no quarrel with that, as long as the baby did not go out with the bathwater. My preoccupation is that the local eyes and ears of central Government did go out-the baby did go out with the bathwater. What happened-and this is pure Sir Humphrey-was that, in an attempt to get rid of what was seen as this regional presence, the unified offices were closed. What then happened? They just went back to where they had been before. They just reopened 300 yards away from where they were, in individual offices, on a functional basis. It is pure Sir Humphrey.

In order to get the place-based policies that I am arguing for, you have to recreate the unified eyes and ears of central Government. You cannot have the LEP chairman moving through six different offices in order to try to get a view about what central Government wants. Please let me just make this point: these LEPs and all this localism-it is not a case of, "Here’s the money and goodbye." It is a partnership; it is a sophisticated relationship that really bases itself on a SWOT analysis of the local economy. The local economy is defined by the LEPs, of which there are 39. If you sit where I sit, of course, it is Redcliffe-Maud of the 1960s, because this is what Redcliff-Maud suggested. Just like all the things I am talking about-the trade associations and the chambers of commerce-it is all in the Devlin report of 1972. It is not rocket science.

Q21 Nadhim Zahawi: You have said that a couple of times now. You recommend that LEP funding should be for a minimum of five years, starting from 2015-16. Why is that? Can you just explain to the Committee?

Lord Heseltine: My single pot is, in significant measure, a capital budget. The object of the exercise is not only to get local initiative but to get local gearing; in other words, you get the private sector, other public bodies or whatever adding money to what the Government can afford. You cannot have programmes that are based on capital in under, certainly, a five-year process, because the private sector just does not think like that-and quite rightly. I say a five-year process, and I say you cannot start it until 2015 because all the money that is currently in the provision of the public expenditure review will already be committed for 2013 and much of 2014. I chose a period when the existing money probably is not contracted and you can begin to use it in a different way.

Q22 Nadhim Zahawi: Do you welcome the Government’s announcement for the core funding for the LEPs up to 2014-15?

Lord Heseltine: There have been two announcements: one is for core funding, which I do welcome; and the second is, in response to my report, an additional £250,000 in 2013 and 2014 in order to help them to prepare their plans upon which the bids will be based. I recommended that for two reasons: first, if you do not do that, the work will all be done within the local authorities, and I wanted to preserve a dimension that was outside that; secondly, it seemed to me important that it was not just the local planners that got at it. It was the use of world-class planning experience which would have to be bought in from outside.

Q23 Nadhim Zahawi: That is evident in some of the LEPs, certainly in my region. Just back to that point of planning, the recently announced core funding that you just talked about is reliant on the LEPs being able to cash-match. Would you go further and allow the LEPs to be given formal fundraising powers?

Lord Heseltine: No.

Q24 Nadhim Zahawi: Why?

Lord Heseltine: They are not democratically accountable and, therefore, the local authorities have to be seen as relevant in that context. There might be ways in which you could be more imaginative in partnership with the local authorities and, indeed, the Government are doing this. They have come to an arrangement with Manchester, whereby they can anticipate rates increases and capitalise on that, so there are ways in which it could be done. I think I answered very quickly specifically about the LEPs. Of course, they are partnerships between the local authorities as well, so there may be ways-

Q25 Nadhim Zahawi: You would have to be cautious about it.

Lord Heseltine: You would have to be careful about the implementation.

Q26 Nadhim Zahawi: You recommend that the LEPs "review their boundaries within a three-month period". The Minister, however, told us that he would not "promise a review of the map or anything disruptive like that". Why do you think that a review of the boundaries is so important?

Lord Heseltine: At the margin, there are areas where there is controversy. I will give you the most obvious one: Kent. At either end-at the west and the east end-where they overlap with neighbouring authorities, there are arguments that say, "Go back to the Kent boundary." Rather than have this issue constantly on the agenda, it seemed to me that it would make sense to give them three months to say, "We want to change this." three months for the Government to agree or disagree, and then say, "No; from that moment on, the boundaries are as they are," and any change would be in a normal Boundary Commission process running over time. I have given the example from Kent but there are others where there are overlapping boundaries, where a short, sharp, quick appraisal, in my view, would have been acceptable and would have got it out of the way, so I still believe it was the right suggestion.

Q27 Nadhim Zahawi: I suspect that most people would agree with you that "LEPs should ensure that their board has the necessary skills and expertise", but we have heard of the difficulty of balancing board manageability. You manage a board and have sat on boards. Size does matter. Obviously, with different interests, all concerned bodies want to be on there. How do you recommend LEPs find that balance?

Lord Heseltine: That is part of their responsibility. A way I would recommend that would help would be to move to unitary counties. I am not recommending a prescriptive approach; I am merely at the moment saying that, if they wanted to go to unitary counties, they should be facilitated to do so. That would save £10 million to £15 million a county, and eliminate perhaps five or six members of the board and therefore make it possible to widen the composition.

Q28 Chair: Just before I bring in Paul Blomfield, Lord Heseltine, we only have 20 minutes or so. We have a lot of questions that we want to ask you and you seem to be enjoying answering anyway. At this point, to help me in my management of the meeting, would you be prepared to come back in January to have another session with us to follow up any unanswered questions?

Lord Heseltine: I would be very honoured. I am sorry but I am going to Tottenham, where they are launching a document on the riots. That is why I need to leave at half past, but I would be very honoured to come back in January.

Chair: That is very helpful indeed. It does mean that we can explore all the questions fully at this point and pick up any that are left unasked and unanswered in January.

Q29 Paul Blomfield: Lord Heseltine, having myself spent the last few weeks on the Growth and Infrastructure Bill Committee, which seems to be falling into precisely the trap that you described to us this morning of not trusting local decision-making bodies and therefore taking powers centrally, I am very much attracted by your passionate advocacy of localism. However, when you talk about "local leadership", could you clarify to us who you think should be in charge of regional development?

Lord Heseltine: I am not arguing for regional development; I am arguing for placebased initiatives, starting with the LEPs. Of course, looking at a region, you have several LEPs in a region. If they wanted to create some sort of dialogue between the LEPs in an area, what possible argument could there be against that? Of course, the local offices of Government cover more than one LEP, so the presence of central Government would be wider than one LEP.

Q30 Paul Blomfield: If I could just pursue that a little-and I take the point you are making-I represent an area that has a reasonably well developed city region in Sheffield. Clearly, that is not replicated in other parts of the country. I wonder how you feel we get this balance right between business leadership and democratic accountability, given the patchwork of different models locally.

Lord Heseltine: My experience is that, in the real world, this balance is being pioneered and is successful. I do not think that it is a party issue anymore. I think using a vehicle where the private sector and the public sector work together is non-controversial. That is hugely advantageous. However, I think that the way to really make it work is to make it so worthwhile, and that is where you come to the bidding process. My experience, again, of City Challenge, which is where we pioneered this on the biggest scale, was that, once there was an incentive, like access to real money, the degree of co-operation became very worthwhile locally. People had perhaps been amazed, not just at elected level but at official level, at the coherence that was put into the process of bidding. One city region was up against another one. It worked.

Q31 Paul Blomfield: You said earlier that part of the problem was that the careers of people in this place were based on functional Departments. Is part of the side effect of that problem that there is insufficient political focus on having regional and local champions within our political structures? I know you argue for mayors, and both parties have explored that option, but in the recent referenda that did not seem to gain much public support. I wonder how you think we should provide that strong political local leadership.

Lord Heseltine: I do not have the slightest doubts about how we should do that. We should do what we have done throughout the history of local government, and that is to legislate to create directly elected chief executives. You can say, "That does not sound much like localism," but I would say that local government is completely the vehicle created by Parliament over centuries, and I find it difficult to understand why we have suddenly lost our nerve at the last stage. You are quite right to say there was limited public support, but that, to me, proves the point: that there is no interest and no one thinks that local government matters, because it has no powers that are not completely constrained by central Government. I was always convinced that the referenda would almost certainly be lost, because local councillors would become the dominant force in the argument and they would all argue for themselves, for their own powers and for their own positions, and so they did. If you followed, as I did, the debate at a local level, you cannot say it was exactly intellectually illuminating. It was pure self-interest.

I would go for a framework of unitary authorities and directly elected chief executives, properly paid. Then-you asked about this and, to me, it is just what everybody else does-that should be a ladder up and down for national politicians. We have just seen a presidential election in America where the battle was between ex-governors of states. That is a very common practice. They really do know about and understand local issues, how they have worked and how they run. You see this process at work. If you are Mayor of Shanghai, you have a pretty good chance you will become President of China. It is a well known journey.

If I am absolutely frank, I think there are quite a few ex-Cabinet Ministers sitting in this place who would be much better employed running great municipalities in this country. I would think exactly the opposite: that for the younger guys coming up, making a success of X-shire would be a logical journey to becoming part of this place. This would all draw together the strengths of the country and create a degree of expertise that is not that common or widespread. I am completely clear that we should go for directly elected chief executives and see it as a vehicle to national prominence.

Q32 Chair: Picking that up, my concern is that you are making this an essential element of your growth strategy in the regions, yet all the history is, as you partly alluded to, that local government reform is incredibly contentious and timeconsuming. Do you not think there is a very real agenda of, if you like, undermining a regional growth strategy by trying to transform the regional political structures?

Lord Heseltine: Mr Chairman, with respect, I have not made this a condition of my report; it is a recommendation, one of 89, and of course they interrelate. I felt that in doing this report I had to be as comprehensive as I could, and to have left this issue of local leadership floating around in the post-referenda experience would have been wrong-wrong for many reasons. One of them, of course, is that there is now a developing process in local government to create conurbation authorities, and I am attracted by that. If they want to do it, they could do it, with Government support; they could it with a directly elected mayor, with Government support; and, as long as there was sufficient local support at local level, they could do it without a referendum. That, I believe, would be a very interesting step and one which is being very considerably discussed at local level between and by people in all parties. The option might be there to make progress particularly in conurbation-wide authorities.

On the point about controversy, I thought it might interest you to hear of my experience in Scotland. In Scotland and Wales, in 1990, I suppose it was, I got rid of the district authorities by prescription and central Government legislation, and created unitary authorities. I could not do it in England. I am, in the end, a loyal member of my party, and there was not a consensus on this subject-the understatement of the day. However, I set off for Scotland and I sat at a meeting with COSLA, which is the local government association in Scotland. There were all these councillors and I said, "Forgive me, but just help me: what happened as a result of the abolition of the districts? Would you like to bring them back?" I was expecting an interesting discussion on the subject, but the important point is that they did not know anything about the subject. I suddenly realised it was 20 years ago and this generation of councillors had no experience at all of two-tier Government. The idea of saying, "You can all have another tier underneath you," was just mind-blowingly irrelevant to their thinking. It would certainly be controversial but, frankly, for whom? For the councillors. Let’s be big and grown-up about this: we know the problem that parties are having in finding councillors. You have to get someone to do it-"Come on, old boy." That is not how you drive a sophisticated economy.

Q33 Chair: I think we are probably looking at another huge debate. I suppose the essential point I wanted to get across was the danger of one particular strategy being diverted by another debate, which, as you said yourself, was not absolutely essential in achieving the objectives of the core strategy.

Lord Heseltine: I have said it is voluntary. If they want to do it, you should not stop them.

Q34 Ann McKechin: I noted your comments, Lord Heseltine, but one of the arguments expressed is that we got rid of regional strategy in Scotland as a result of that local government reform, and we have ended up with a very fragmented local government service, with councils that are too small. There is also an argument for Europe, where they have micro-councils and regional councils; they have different layers of government, which work and do provide a localism agenda. I would just put it to you that there are different models and that, for some functions, it might be better to deal with it at a micro level-at a very small district level-but there are other sub-functions, including economic development, which work far better at a regional level.

Lord Heseltine: You could have another Royal Commission and you could come up with all sorts of models. You could probably come up with models that are different in different parts of the country, depending on whether they are urban areas or rural areas, whatever it may be. But if you are asked to do a report such as I was asked to do, it seems quite important to start from where we are. This Government is committed to LEPs. LEPs broadly reflect Redcliffe-Maud of the 1960s. It is a workable model and the problems are urgent, so let us go from where we are, as opposed to trying to upset the whole thing, which would simply mean a complete delay in the urgency of implementation.

Q35 Mike Crockart: I would like to return to one particular aspect of what you were saying. Unusually, I had been agreeing with everything you said up to that point, but you seemed to be suggesting creating a political class that would rise up through the ranks, dealing with local government and then moving up to national Government if they were successful at that. Much of the criticism that comes and is levelled against many people in this place is that they have done exactly that, but they have gone through the researcher/special adviser role and ended up in Parliament with, effectively, very little knowledge and experience of business at large. How do you think that what you are proposing would differ from what has been the route for a lot of people in this place already?

Lord Heseltine: I think the criticism of the special adviser route is that they come out of university and they become part of a groupie culture centred on some national politician and, before you know where you are, they have a safe seat and they are in Parliament. That is not in any way compatible with what I am saying. The people I referred to would have gone into local government and become executives of a major economy, in public sector terms, and from there would move in to national Government, if they were successful. I do not think it follows that they would belong to a particular political party. I think the result in the referendum on the mayoralty of Bristol is quite interesting to all of us, as a matter of fact; there are some very interesting questions. On the other hand, there are 39 LEPs, which gives you a feel for the scale, and there are 650 Members of Parliament, so there are plenty of other routes in. It would professionalise the sort of person you are talking about if they came that way. Of course, they could still come the way they come now.

Chair: As somebody who cut their teeth in local government, I thoroughly agree with that approach.

I am not going to invite another question because we started early and I am conscious that you have another engagement, Lord Heseltine. I apologise to Members who have been sitting there with their questions. You will have priority in asking them the next time we have Lord Heseltine before us, in January.

Lord Heseltine, thank you for coming along today and sharing your thoughts with us, and I look forward to seeing you again in January, when we will continue on the themes that have been developed today. Thank you very much.

Lord Heseltine: I wish you a happy Christmas. Thank you very much indeed.

Prepared 21st December 2012