Public Administration Select Committee - Minutes of EvidenceHC 756

Oral Evidence

Taken before the Public Administration Committee

on Wednesday 5 December 2012

Members present:

Mr Bernard Jenkin (Chair)

Priti Patel

Kelvin Hopkins

Robert Halfon

Charlie Elphicke

Paul Flynn

Greg Mulholland


Examination of Witness

Witness: Rt Hon Lord Heseltine of Thenford gave evidence.

Q1 Chair: May I welcome you to this special evidence session on strategic thinking in Government and civil service reform, and could I ask you to identify yourself for the record, please?

Lord Heseltine of Thenford: Yes, I am Lord Heseltine. I was Deputy Prime Minister under John Major.

Q2 Chair: You are also author of "No Stone Unturned", the report that you were commissioned to produce by Her Majesty’s Government on achieving economic growth. Your report calls for a strong overarching strategy at the centre of Government. Why do you think Whitehall fails to operate strategically?

Lord Heseltine of Thenford: I am not sure that it does fail to operate strategically. I think the strategy is partial. It is very Whitehallcentred and is largely a composition of individual policies. My report was looking for a more holistic approach. It is quite possible to illustrate my thinking over a part of the report, which in some ways people might have felt was unfair to Government. I said that one of the commonest things I heard when travelling up and down the country was that the Government had not got a growth strategy.

Colleagues in Government remonstrated with me and said that we had. It was true; there was a document that basically was a growth strategy, but where I placed a different emphasis was that my approach was more total and involved the various parts of the economy as opposed to just those bits that the Government saw as being central to growth. The Government strategy was very heavily orientated towards the Treasury and the Department for Business, Innovation and Skills, whereas in my analysis there are many other potential players that would have to be involved if you were to have a growth strategy that was coherent and comprehensive.

The most obvious example is the LEP framework, which has been created by the Government precisely for this sort of purpose, but it cannot escape any serious analysis of growth without considering the role of the quangos, the local authorities, the chambers and the small business sector. They all have a role. Put down to the simplest of human tests, when the Government policy document to which I referred was published, how many people the next morning changed the way they went about what they were doing? If you do not create that sort of change on a significant scale, business goes on as before. So in my analysis I am looking for ways to change fundamentally the way in which this country adopts its approach to growth.

Q3 Chair: That depends upon leadership, doesn’t it, and it depends upon Ministers being hungry for strategic thought, for challenge and for a clearer, more comprehensive strategic approach? What do you think is wrong in the culture of modern government that militates against this? What are the factors that press Ministers against this course of thinking?

Lord Heseltine of Thenford: I think your opening comment just then was absolutely fundamental; it is about leadership. I believe absolutely that unless the Prime Minister, whoever it happens to be-because this is not a reflection of this Government or this Prime Minister-has a determination to drive Whitehall in a particular direction, the forces of inertia are so deeply entrenched and so explicable that insufficient action will follow.

Q4 Chair: Who are these forces of inertia in Whitehall?

Lord Heseltine of Thenford: Take the 20 or so Departments: how many of them would actually think that their departmental responsibility involves a growth agenda? You can understand why, if a Minister is responsible for the Department of Health, for example, with all the political pressures and priorities, they never, as an adjunct to all of that, get round to saying, "I have to look to see what I can do to help the economy to grow." There certainly isn’t a statement from each Department outlining what they could be doing to stimulate growth.

I have given in public indications of why that whole approach is necessary. If I follow it through in the Department of Health, self-evidently you have an ageing population, and the use of modern technology to enable them to stay in their homes longer is a fundamental asset of modern society. The question is: to what extent is the Department working with the equipment industry in order to develop new and more sophisticated technologies to monitor the position of elderly people if they stay at home? That is a worldwide industry that serves the client group of the Department of Health, and it is something at which Britain could be very good. Those sorts of examples are to be found in every Government Department. However, at first thought the idea may be remote.

Q5 Chair: Do you not feel that in Government today there is a tendency for everybody to feel that they live in a box, and outside their box is somebody else’s problem, and if they can move any problem into somebody else’s box then they have solved the problem? Don’t Departments and individuals work like that?

Lord Heseltine of Thenford: They do, and that is another way of approaching what I have just said-that if you are in a Department where you see your priority as health provision, or education, or transport, which are all very important, you do not actually say, "How do these interrelate with other Departments or the local authority?"

Q6 Chair: I am asking this structural question, Lord Heseltine, about how the Prime Minister and the Cabinet should get the whole of Government to mesh their longterm objectives with this grainy detail in Government Departments, because it does not happen at the moment, does it?

Lord Heseltine of Thenford: My report sets out the mechanism by which that happens. The mechanism starts with a clear growth strategy in which the Government sets out its view as to how you get the economy to deliver effectively, and it would be comprehensive. Secondly, you then get each Government Department to respond by saying, "This is how we will play our part in this Department of this growth agenda." Thirdly, you have to have a creative tension in Whitehall, which at the moment is very largely absent, so that someone other than the individual Departments is monitoring progress towards the objectives that the Government has set out. I have indicated how I think that could work. There are many versions that could be adopted, but the one that seems to me most practical and most ready to hand is that the Treasury have now recruited somebody who has come from the experience of running LOCOG very successfully. The Treasury has already got the City’s agenda, sponsorship of the financial services industry and major infrastructure problems. The new Minister coming in from LOCOG has got a locus that could be expanded in order to create the internal monitoring process that calls the individual Departments to explain how they are making progress against their objectives.

Q7 Chair: This Committee has produced two reports so far lamenting the lack of strategic thinking in Government, and the lack of capacity for strategic thinking-the ability to think these things through and come up with solutions. You quote from one of them in your own report. Yet we have had pushback from Ministers on both reports. They are resisting our conclusions. Why do you think they are so hostile to this idea that there should be a more strategic approach? Because I bet, Lord Heseltine, you are going to find something of the same resistance.

Lord Heseltine of Thenford: You may have noticed that I took the precaution in my last paragraph of anticipating such a response. What I am saying here is merely an echo down the decades of what I have said many times in this room to other Select Committees. Every Prime Minister of whom I have ever had any knowledge-and that really goes back to the ’70s and Mr Heath-feels the frustration of trying to pull the levers of Whitehall. As I say in my report, they are connected with elastic. Nothing actually happens, because there is not the internal creative tension that you would expect to find in a well managed organisation, holding people to account for what they are meant to be doing. We are not governed by professional managers; we are governed by politicians. The civil service is essentially an amateur process. The more you look into these things, as I say in "No Stone Unturned", the more you come across this capacity for individual Departments to have their initiatives, but in the end to fire on a very limited range of potential. There is no management information system.

Chair: We will come to that later, Lord Heseltine.

Q8 Priti Patel: Lord Heseltine, is this more about management structures or the capability of the individuals involved?

Lord Heseltine of Thenford: I think if the management structures were right, people would respond in a way that they do not now. If you are a Minister, first there is no induction course. You just arrive, "Good luck," and are on your own from day one. If you want to make a success of your career and want to do the job properly, you can pick on two or three highish profile matters in your Department and throw yourself into them. You come to the House and you perform quite well. Maybe you have a bit of legislation to take through, and you get it through and people say you did a professional job. The press start talking about you as a rising star and the system lives with that.

Nobody says, "This Department is responsible for this totality of activity. Who set the objectives? What is the monitoring procedure? What are the outcomes you are trying to achieve?" No one does anything like that. So it is very possible for the bulk of the Department under such a ministerial leadership to proceed as life always has proceeded, without any stone being overturned.

Q9 Kelvin Hopkins: Is it not the reality that from the late ’70s onwards, Governments adopted an ideology, supported by successive Governments, Conservative and new Labour, of globalisation and getting Government out of the picture and letting the market do its worst-setting a framework of monetary policy and then letting the markets run? Anybody who stood in their way and said, "No, we want to control things, plan and intervene," was marginalised. Some dissenting civil servants were sent off to manage power stations in the frozen wastes, no doubt. But the Treasury became completely dominated by people of that ilk. I have met and spoken at length with one of the former deputy economic advisers to the Treasury who espoused precisely this ideology. Did you agree with the abolition of the National Economic Development Council, Neddy? It seemed to me that that was the point at which all attempt to plan anything was abandoned.

Lord Heseltine of Thenford: Neddy was a farce; I sat on it. There were three parties, and each would turn up with their prepared statement. A desperate conversation would take place and then each would go outside and brief the press along the lines of their statement. There never was a real attempt. You can ask interesting questions about what Harold Macmillan was trying to achieve, and it is possible that rather more constructive activity took place in the little Neddys. But were they a driving feature? No, they were not. Should they have been? Something like that, but not necessarily that.

You will know as well as I do that the whole confrontation issue with the trade unions, which came later than at that stage, really made the idea that they could work unreal. That does not in any way reduce the strength of the argument that there should be a much more coherent policymaking process in Whitehall; I just would not choose the Neddy model as a good example of it.

Q10 Kelvin Hopkins: Neddy was a bit of a distraction from my main question. I actually sat on various Neddy bodies myself, so I knew it well and I agree with your opinion. It is the fact that there was an ideology that took over, which only Britain adopted.

Lord Heseltine of Thenford: Sorry, I did not deal with that. My own view is that that ideology was born of the Empire. We actually owned the world marketplace, and we had the firstmover advantage of the industrial revolution. Across the world, painted pink, were district commissioners, were the British military capability, were the governors, and were our people. So what was loosely regarded as free trade at that time was actually British trade within the world’s greatest protected market. I am not in any way against any of that, but I am slightly suspicious of the analysis that turned that into a global economic theory, which no other country of which I am aware believes in. We are the only ones still talking in the language that evolved for us in a world of imperial power.

Q11 Robert Halfon: Given the high turnover of permanent secretaries and other civil servants, do you think the way to solve the problems that you describe would be to have longterm chief executives appointed to each Department that would basically run things, so that Ministers would in essence by the ambassadors for their Departments?

Lord Heseltine of Thenford: First of all, I think the appointment of permanent secretaries should be much influenced by the outside directors appointed to the Departments. There should be no presumption that permanent secretaries come from within the Department or from within the public sector. The idea that you have a highly motivated, talented team of amateurs zigzagging across the Department’s expertises every two years is a formula for a lack of professionalism and a lack of stability. This is not the fault of the people zigzagging, but the consequence is tied up with what I said: that there is no management information. I think we are going to talk about procurement, aren’t we?

Q12 Chair: We are. But is it not astonishing that out of the 18 Departments of State there are only two permanent secretaries still in post who were in post at the general election, and we are on to our third permanent secretary at the Department for Transport?

Lord Heseltine of Thenford: Yes, it cannot be defended. Mind you, it is fair to say that you could have asked the same question about the Secretary of State for the Department of Trade and Industry in the Government of which I was a member.

Q13 Chair: But if the Ministers are churning around and the permanent secretaries are churning around, nobody knows anything.

Lord Heseltine of Thenford: No, of course.

Q14 Robert Halfon: Would you have chief executives, though? Would that be the solution?

Lord Heseltine of Thenford: What is the difference between a chief executive and a permanent secretary?

Robert Halfon: The chief executive would not be a career civil servant.

Lord Heseltine of Thenford: I would personally recruit, whether you call them a permanent secretary or a chief executive, but they would not have to be ex-civil servants. I see no argument at all for saying that you cannot bring people in, and equally take civil servants out. It is true that there are career problems, and no one has been able to find adequate solutions for that, but that should not stand in the way of actually trying to professionalise the administration of this country.

Q15 Charlie Elphicke: Lord Heseltine, one of the key concerns we all have is that we live in a much fasterpaced, 24-hour news cycle, fiercely competitive globalised world. Like it or loathe it; that is how the world is. It does not help to have a governmental system that has less sense of urgency than the average garden snail. Your report talks about creating the right incentives to ensure decisions are well thought through and timely. I think we would all agree with that, but what kind of incentives would you envisage?

Lord Heseltine of Thenford: Promotion for Ministers, public acclaim, and survival for Ministers, which is probably the biggest incentive of all. If you follow the point at which I have gone from the national growth strategy to a departmental growth strategy, that would be quite a comprehensive document, backed up by comprehensive detailed information about what the Department is doing. Within the creative tension of Government that I am talking about there would be people asking questions about that.

The fact is that you can become a Minister or a Secretary of State, and in three years or so, which is about the longest you are likely to stay, there will be great swathes of the Department of which you had no knowledge at all. To me, that is unacceptable, because within those areas there can be all sorts of exciting things that could be done and things that should not be done at all. My own personal experience of this was in the very early days of 1972. I had been a Minister for two years when I suddenly took an interest in space policy. There was no interest in space policy, but for various reasons, which I will not weary the Committee with, I felt I had got to look at space. Within days of my taking an interest, the people in the space department were changed. What had happened is that because no Minister ever took an interest before, that sector of the Department was coasting along doing a perfectly reasonable job. Out of my taking an interest came the European Space Agency and Britain’s leadership in satellites. It should not have needed me to unearth that; it should have been on the departmental agenda.

Q16 Charlie Elphicke: That is a really important issue that goes to the heart of the whole debate. You have 100 Ministers and 380,000 civil servants. In America they deal with this issue by having a transition where there is a change of Government. The entire top level of the civil service is changed in order that the mission, purpose and direction of the Government can be more quickly implemented. Do you think that is something we should or could consider here?

Lord Heseltine of Thenford: I personally have never had difficulty at all, taking on a Government Department, in getting officials to move in the direction I wanted. There was one occasion, which has been quite well documented, when I literally took my permanent secretary out to lunch, gave him an envelope and said, "This is our agenda for what we are going to do." It was rather quicker than reading that many files-"This is the briefing, Secretary of State." I think the civil service in this country, amateur though it is, is a Rolls-Royce, but it needs fuel and it needs a driver. That is what Ministers are.

Q17 Charlie Elphicke: Regarding the driving side of it, talk to any Minister in the current Government, and they will say to you, "Do you know: the secondguessing by judges just makes our lives impossible. It makes it impossible to take a decision and slows down Government. This judicial review has got out of control and the length of public inquiries is also a serious concern." If you like, justice delayed is justice denied; we need faster Government, which means not having judicial review all over the place. Would you say that there is a case to massively restrict judicial review and judicial secondguessing, and to have short, sharp inquiries and then take a call?

Lord Heseltine of Thenford: I agree with both those points, and I have seen this happen. When I was judicially reviewed in 1979 it was a headline story. It was a "Secretary of State humiliated"-type headline. Now it happens every day, all over the place, at every level. It is not just Ministers; it is happening in every aspect of life. The lawyers have-how it happened, I do not know. It is an interesting subject. But that is highly detrimental and very expensive. I have no doubts about it at all.

Q18 Charlie Elphicke: Finally, you talk in your report about making it happen, and you say that requires an experienced implementation team. How would that work? Where would it sit? Would it be a souped-up policy unit for the Prime Minister, or would it be located in the Cabinet Office? What is your vision?

Lord Heseltine of Thenford: It will not work unless the Prime Minister is behind it, is seen to be, and believes in it. If that happens then Whitehall knows the score, but if they can find any sort of wriggle room for bypassing, appealing or just delaying, they will find it. The commitment of the Prime Minister is fundamental.

There are options for where you locate and the form of the implementation team. You could create a new one out of separate units within Government. You could create one in the Cabinet Office; to some extent, the Cabinet Office has a function of this sort already. To my surprise, I have to say, it so happens that an embryo unit is emerging in the Treasury. On the basis that what you have may be the place to start, it seems to me that if I was in charge of making these decisions, I would now build on the Treasury capability because it is there and I believe the Chancellor is committed to it. The personality to lead it has just been recruited with a very impressive track record, so the quickest way forward is to build on that, but it is not the only way forward.

Q19 Robert Halfon: If I want to buy a House of Commons Dell laptop I pay over £1,000. If I go to Currys I pay £300, which I did for exactly the same computer. In fact, I got a better computer at Currys for the same price from the same company. We had an inquiry on IT procurement, which exposed the same sort of thing across IT in Government. What do you think we can do about this in practice?

Lord Heseltine of Thenford: Something quickly, I would hope. I did get a bit involved in this issue. On the figures, if I can generalise, I think £274 billion-worth of contracts are let in the public sector by Government in a year. On Government figures, 60% of those will be over time and over budget. I do not know how you cost what that comes to, but it is a huge amount of money.

Curiously enough, that is my second preoccupation. My first preoccupation is what it does to Britain’s companies who believe, by experience, that if it is over time and over budget, it will all be all right on the night. What is the psychology of the competitiveness of those companies when they then try to win contracts in Germany, where, my guess is, contracts are not over time and over budget? They do not win them. So the cost to the taxpayer of what I have just said is serious, but the psychological damage to the competitiveness of Britain’s companies is much bigger.

The Government, through Francis Maude, has made significant attempts to deal with this issue. They have set up an organisation to deal with the major projects, but there are so many of them that this new organisation can only cope with a number. Therefore, the bulk of the big projects are now back in the Departments where they were and in those Departments there are people in charge of procurement, who are paid a figure in the range of £100,000 per year, which is not a bad income. But the equivalent in the private sector, I am told, would be paid £300,000 per year, and the only way to get people of that experience and quality is to recruit them from outside, which breaks the Government’s pay ceilings.

The Government has a view, which would take time to test, that you could train existing civil servants in better procurement techniques. So they take them off on a course, I believe, and they get trained and come back. But either they come back and they are not anyway good enough to do the job, or they come back and they are good enough to do the job, in which case the private sector will pay them £300,000 as opposed to £100,000. So if you want to grip this issue, and personally I think it needs gripping very quickly, there is only one solution, and that is to recruit outside.

Q20 Chair: So this policy of not paying anybody more than the Prime Minister is bonkers.

Lord Heseltine of Thenford: I would never use words like that. It is obviously a highly thoughtthrough and intelligent policy. Whether I agree with it is another matter. If there is a market for quality and you try to undermine it in the sense that you have pay scales that are not related to it, there will be a consequence. The solution is to go for pay budgets as opposed to pay ceilings.

Q21 Robert Halfon: How do you break the monopoly of the big companies and genuinely open procurement to smaller, agile companies?

Lord Heseltine of Thenford: There are various ways you can do that. The most obvious one is breakout contracts. We had to face this with the Ministry of Defence, where selfevidently there were not many people around who can build a modern frigate. However, once you get into the contract for a frigate there are huge numbers of tiny components that you can break out. As opposed to getting a tender from the frigate manufacturer, which incorporated all the sub-tendering going on, you can get a tender from the assembler, which deals with the assembly costs, but break out the components.

Q22 Chair: So the whole concept of defence prime contractors is broken, is it?

Lord Heseltine of Thenford: No, I do not think so. I think it is unavoidable and everybody does it.

Q23 Chair: At the moment BAE Systems builds a submarine and it is responsible for buying all those subcontractors, and there is no expertise in the Department about how to contract with the myriad of subcontractors and small companies.

Lord Heseltine of Thenford: On the general question of procurement, there would not be sufficient expertise, I expect, within the Ministry. When I was there I brought Peter Levene-Lord Levene-in to cope with this issue, and he did it extremely effectively-in the teeth of civil service objection, as a matter of fact. The Prime Minister had to overrule the Civil Service Commission to get Peter Levene into post in the first place.

Q24 Chair: At quite a high price, I seem to remember.

Lord Heseltine of Thenford: I do not think it was a high price, but in defence budget terms it is not microscopic. The main point to bear in mind is that Rolls-Royce can do the engines; no one else can do the British defence interest in engines, but Rolls-Royce have got a huge number of subcontractors, and that is where the competition can be built in. It will still need highly professional procurement people in the Ministry of Defence.

Q25 Robert Halfon: How do you force Rolls-Royce to ensure that those subcontractors will be part of it?

Lord Heseltine of Thenford: You can make it a condition of the contract. I am not a procurement expert, but you could simply define the totality of the contract in terms of what Rolls-Royce itself can do. Then the procurement process is broken down so you can get competition where you can. You will find, of course, in something of this sort, there will be quite a few specialist subcontractors where there is not a lot of competition anyway.

Q26 Robert Halfon: Do you believe that you can use procurement as a tool to promote Government policy in other areas?

Lord Heseltine of Thenford: Oh, yes.

Q27 Robert Halfon: May I give you one example? For all procurement for the Department for Work and Pensions, it is not compulsory, but it is suggested in strong terms that all companies have to have a certain number of apprenticeships as part of their contract. This has been tremendously successful; there have been 2,000odd apprentices. When we asked Francis Maude about this he said he did not want to open a Pandora’s box-that people would start saying it should be a certain number of women and so on and so forth. Do you think, if used in the right way, it could be used successfully, particularly in the example I have just given about promoting apprenticeships, and that could be extended across Whitehall?

Lord Heseltine of Thenford: I have no problem with that. You would find internationally that sort of practice is very common. This is where we come back to this amateur approach. The companies and the countries that are beating us all use these sorts of techniques in order to further the expertise of their industries. We are the only ones out of step.

Q28 Chair: In your study of procurement, Lord Heseltine, did anyone complain to you about the European public procurement regime, which might prevent you, for example, from specifying British subcontractors in a contract?

Lord Heseltine of Thenford: Certainly you would get complaints of that sort, but in my experience the European debate is conducted in such grossly oversimplified and unrealistic terms. Let me give you just one example, which is not-

Q29 Chair: I was asking you about procurement rather than the general European debate.

Lord Heseltine of Thenford: It is the same point. If you look at procurement on the continent, they have exactly the same European directives governing them as we do, but they do not seem to have a problem, in practice. The question has to be asked: why is there no complaint on the continent of Europe in the way that there is vociferous complaint here? There could be two reasons. One is that they are cheating, which is the common allegation. The other is that we may have screwed it up.

Q30 Chair: Our judicial review culture might have something to do with it.

Lord Heseltine of Thenford: Start a step before that. The departmental lawyers who look at the directive and say, "This is not good enough and we will make sure it is." I set out to illustrate this. In around 1995, there was a rumour going around this place that the Europeans were going to interfere with the Assay Office. That is the guy who does all the hallmarking, and it is a very prestigious British institution. I just got a whisper that this was going on. Then one night, about 6 o’clock, an official from the Department came into my office and said, "Would you be kind enough to sign this, Secretary of State? We have got to lay it tomorrow. It is the regulation to implement the bullion directive." I was alert, so I said, "Does this regulation comply with the directive?" and the reply was, "No, Secretary of State, because the directive would not have worked, but we have sorted it and this now will work." So I said, "Take it away and come back with a regulation that does no more and no less than the directive that our ministerial colleagues have agreed to." With much aggro they did, and no one ever heard of the bullion directive again. So that was entirely shooting oneself in the foot here, domestically, with lawyers that were, frankly, not continental lawyers.

The whole distribution of European money is a very interesting thing that I have looked at again in my report. There is £11 billion of it in the review period; that is a lot of money. The European Commission wants that money to be broadly distributed on a place basis, so it can be locally considered, locally conceived and make a difference locally. In this country, we have taken it and compartmentalised it into the big-spending Departments in Whitehall. They all get their share: a bit of money for transport, housing, the environment and so on. Then they make it available to the localities functionally. It is very complex and creates huge amounts of resentment locally because they feel it is not getting to the right place, it takes too long to get permission and all this stuff. It is a complete Horlicks out there, and it is exactly what the European Commission does not want, but the complaints go straight back to Europe.

Chair: I am moving on. Priti Patel.

Q31 Priti Patel: I am going to focus somewhat still on the recruitment point. I am interested in the fact that you have called for Departments to be able to recruit specialist expertise above the current salary cap. In light of where we are at with the civil service right now, and all the frustrations sensed by Government Ministers and so on, what kind of reaction have you had from Ministers to this proposal?

Lord Heseltine of Thenford: My experience of the whole localist agenda is that it is fiercely resisted. I have no doubt that there would be resistance of the same sort to the area of recruitment unless it was seen as a way of raising general pay levels, which it certainly must not be allowed to be. The question that occurred to me as I listened to your question is: should that sort of feeling that you are stirring the pot be an objection? To me, it should not be. The job of Government is to govern. We are an amateur nation and we need to become more professional. The Chairman said it in his opening remark: we may not like globalisation-I personally do, but a lot of people don’t-but it is here to stay, and it is going to get more ruthless and faster-moving. So we have to up the game.

Q32 Priti Patel: On that particular point, do you feel that, with Ministers in particular and with the leaders in charge, there is enough of a sense of urgency here that we simply cannot carry on as we are, and that we need changes within the civil service? For example, do we need to bring in outside expertise at the right level, at some of the competitive salaries in the marketplace as well, to actually turn the agenda around and have the strategic focus that is required?

Lord Heseltine of Thenford: Your question is very relevant and very wide. Is there an urgency? No, there is not an urgency, and this goes back to a point I made earlier. Governments are seen to announce initiatives, and many of them are very good, but does Britain change as a result? Does anybody out there say, "My golly, we are in a competitive position; I had better do something about it. I had better have a better trained workforce and recruit better qualified civil servants"? Does anything like that happen? The answer is no, it does not. That is the problem that seems to be the inherently difficult thing to grapple with; we simply coast on.

If you take the education system-which I believe Michael Gove is tackling with a lot of energy and in the right direction-that problem has been on the British agenda since the end of the 19th century. If you look at the problems of trade associations, of which there are 3,600 in this country, that was subject to the Devlin report of 1972. If you look at the Chambers of Commerce, which are the only credible vehicle to mobilise local business support, that was part of the Devlin report of 1972. If you look at the overlapping local authorities, that was identified in the late ’60s, and so we go on. It takes a quarter of a century in this country for change effectively to take place.

If you start with Barbara Castle’s "In Place of Strife" in 1968, it was into the early ’80s before the law finally caught up with trade union legislation. This is the way in which it happens. We get there in the end, but by that time everybody else has moved on.

Q33 Chair: We heard at our seminar on the civil service last week that the three people who did the most for the civil service in the 20th century were Margaret Thatcher, Hitler and the Kaiser.

Lord Heseltine of Thenford: Don’t tell her.

Q34 Priti Patel: May I come back to you on that point? If there is no sense of urgency, and the levers are there but the links are elastic, what should our Prime Minister be doing now to actually change this?

Lord Heseltine of Thenford: My report is highly specific. There has to be a growth strategy embracing the whole range of activity. We have touched on some, but only a very small part of what they are. Each Government Department has to sign up to their place in it, and have a management information system so that everybody knows exactly what is being done, what objectives are being set and how they are being achieved. Then you should use what money you can afford to create competition between, basically, the LEP areas. There are different ways to do it, but LEPs are as good a place to start as anywhere. Let them bid for what money is available. Then you will get competition, choice, placebased policies and you will get gearing, as each local authority says, "If we could have this much of your money we can do this, that and the other, we can get the sovereign wealth fund in, we can get the private sector in, and we can get the universities engaged." Of course, then the test I put is: does anyone do anything different? Yes, they do. They all suddenly realise that they can activate a plan based on their location.

The Prime Minister invited Sir Terry Leahy and me to do it for Liverpool. It became the basis of their City Deal. Andrew Adonis is looking at the North East now. Manchester conscripted help from Goldman Sachs. I have picked on two or three places, but there are 39 of these places.

Q35 Chair: Looking at Whitehall Departments, Whitehall is a vast machine trying to deliver a huge number of objectives. It has to be a federalised system, does it not?

Lord Heseltine of Thenford: It should be, but it is not.

Q36 Chair: The centre has become bigger and stronger over the last few decades. When Margaret Thatcher left office there were 2,500 people in Downing Street and the Cabinet Office; today there are 3,500. The bigger the centre becomes, the more ineffective crossdepartmental working seems to become. Why do you think this is so?

Lord Heseltine of Thenford: Because at its heart Whitehall does not trust anything other than itself. You mentioned decades; I would say the process has been under way for 150 years. It is very human and understandable that the great buccaneers who built this country were highly successful and they created the first mover advantage of the industrial revolution, but they created social conditions that were totally unacceptable. So the process of democratically providing a social level that was acceptable transferred power from the buccaneers who had created the wealth to the councillors and their sponsoring departments, who were providing a totally different service, which was basically social provision.

With the financial adjustment that took place in order to get the equalisation processes, London became ever more powerful, but it became ever more powerful on a functional basis. So what started off as policies for Liverpool, Manchester, Birmingham or Newcastle, became transport policies designed in London and allocated to those particular places. The more the functional monopolistic processes worked, the more the circulars, the more ringfenced grants, the more central decision making replaced the dynamic that had been there 150-

Q37 Chair: Forgive me, my question was more about crossdepartmental working or lack of it. I have not understood.

Lord Heseltine of Thenford: At some length I have explained how that all came about. The functional monopoly of a Department operates basically to the exclusion of other functional monopolies in other Departments. I can only remember one meeting in my lifetime in Government that was placerelated, and that was in the autumn of 1981 after the Liverpool riots. I did a survey of a Government Department a month ago in which I asked a very large number of civil servants if they could remember such a placebased meeting, and they could not.

Q38 Paul Flynn: You said in your very interesting report that when you were in your own business you were involved in the minutiae of every decision, but when you became a Minister you had an elevated position that was remote from the implementation. My most vivid recollection of you as a Minister was a buccaneering episode, when I believe you were in battledress, accompanied by helicopters and troops, in a daring raid on Molesworth Peace Camp, which was occupied by about 12 hippies and a goat. Do you think that Government Ministers now should be more Tarzan than Jane?

Lord Heseltine of Thenford: It is up to them. This is a rather sexist question I am not briefed to answer, but the story about Molesworth was such a travesty of what actually happened. Do you want me to explain what happened?

Q39 Paul Flynn: Is my memory correct about the details?

Lord Heseltine of Thenford: Your memory about the public relations is correct but the facts were not as they were reported. What actually happened was that I was responsible for deploying American cruise missiles. Greenham Common was the first one, and there was a fence around it. Then the word went out they needed a second base. Advice came to me that we had a second base at Molesworth. I said, "Excellent, we will do it." "There is only one problem, Secretary of State; there is a sixmile perimeter and no fence," and there was a peace camp, as you say. So I was faced with a very simple problem. There was no way I could have put up a fence in the normal way because the peace people would have just literally lain all round the perimeter and we would never have made any progress.

Then I remembered the Mulberry Harbour story of D-day, where we built docks in the south of England and floated them across the channel and linked them to Normandy. That is how we got the Mulberry Harbours in place for the invasion. I thought that we had better do this. I got hold of the Royal Engineers, and a brilliant special adviser I had called Tom Baron, and asked, "What do we do?" They said, "We will fix it, Secretary of State," and they did. It was the biggest thing the Royal Engineers did since they crossed the Rhine in 1944. They actually put up a fence overnight, starting at 11 o’clock when the press had gone to bed, and finished at 6 in the morning, having created an enormous misleading array of activity. All these coils of wire were labelled "Falkland Islands" and all this sort of stuff, so we had to wait for the press to go to bed so they could not mobilise the peace movement. Then the Royal Engineers moved in, 6 o’clock in the morning, "Secretary of State, we have secured the fence."

Q40 Chair: Of course, Lord Heseltine, you would never be allowed to do it now because the Human Rights Act would prevent you evicting the peace protesters from their homes.

Lord Heseltine of Thenford: I did not evict anybody. I just put up a fence on my land-Ministry of Defence land. The story was such a success for the Ministry of Defence and the Royal Engineers. When I got there I was dressed like I am now, but it was raining, and some well-meaning wing commander put a flak jacket on my shoulders. That was the story.

Q41 Paul Flynn: I am glad you confirmed that you were in battledress. That is still the abiding impression of the highest point of your ministerial career.

Lord Heseltine of Thenford: I cannot be held responsible for the national press.

Q42 Paul Flynn: It is lodged in the public memory. One of the things you mentioned, which was very interesting, was you look back rather sentimentally, I think probably with some affection, to the time when the world map had many pink areas. One part of our national strategy, and the present Ministers have sat in that chair and said this, is that we should be punching above our weight. This means going to places like Iraq and Afghanistan-

Chair: Oh come on, this is not relevant.

Paul Flynn: It is entirely relevant, because we are. As a result of those efforts, punching above our weight means dying beyond our responsibilities, and spending beyond our interests. In Afghanistan, after pushing £900 million just into the bank, which has been-

Chair: Ask a question, Mr Flynn.

Paul Flynn: Should we not be adopting the role, as former imperialist nations have done, such as Germany, Japan and Russia, of abandoning our imperialistic ambitions and get round to doing practical trade instead of spending billions and billions trying to recapture a lost imperial dream?

Lord Heseltine of Thenford: I subscribe to Macmillan’s view about the winds of change. I think he was right, and was one of the most enlightened post-war Prime Ministers. In that context, spending one of the highest proportions of aid of any country in the world is a huge tribute to the British foreign policy.

Q43 Paul Flynn: Fine, absolutely; there is no argument there, and it also could be good for trade. It is our military interventions that are ruinously expensive and ultimately futile, replacing rotten Governments with new rotten Governments in many cases.

Lord Heseltine of Thenford: That is a highly party view.

Paul Flynn: You spend some time in your report-

Chair: Mr Flynn, shall we get back to his report?

Q44 Paul Flynn: You leave me in difficulty because you actually asked the question I was going to ask. I am talking about the report. You quite rightly said some very interesting things about the role of London, and how London probably has not had the recession that many other parts of the country have. You do not want to see any reduction in London as an engine of economic change and going ahead, but how do we look after the areas outside of London in the same way as you concentrated on Liverpool in the ’80s?

Lord Heseltine of Thenford: My report builds on the Liverpool experience, but not just Liverpool. It builds on what we did with the development corporations, with City Challenge, and with the urban grant linking to private sector participation. It takes a very large sum of public money, which is currently spent via London, and makes it available on a competitive bidding process to the LEPs. That would have the most galvanising effect across the country, and it would lead to placebased policies and competition between areas. It would be built on the strengths of local areas, and it would put Britain into a position very similar to that which applies in every other advanced economy, which would be transformational. It would not undermine the position of London, and that would be an unforgivable thing for any Government to do.

Q45 Robert Halfon: On the Local Enterprise Partnerships, you suggest that there should be a Minister championing them. How would that work in practice? What are you envisaging should happen with them? Do you think they have been a good replacement for the RDAs?

Lord Heseltine of Thenford: I think the RDAs were very much a creature of central Government, and they became very topheavy and bureaucratic. You could have slimmed them right back down to what they were when I was involved in the process. That would have been a way to go. The Government decided not to do that, and to move to Local Enterprise Partnerships. When I came to write the report, I gave a lot of thought to the art of the possible as well as the art of the best. LEPs are there, in existence, and represent a fusion between the public and private sectors; they have some very good people, not everywhere, but in many cases, so this seemed the place to start. Building on all that competitive experience that I had of using central money to activate more money and more activity, it seemed to me right to build that concept into what is perhaps the biggest theme of my report. We have two hours to wait to see what the Government will do.

Q46 Robert Halfon: Do you think the local enterprise zones are a good idea, and are they working? Is that how you would have done things?

Lord Heseltine of Thenford: I lived with this debate in 1979, when we were doing London Docklands. Geoffrey Howe, who was then the Chancellor, was very keen on enterprise zones. I was very keen on development corporations, so we reached a happy compromise and we did both. There is no way of proving which was the more important, but what is beyond peradventure is that both played a critical role. If you to talk Mr George Iacobescu now, the boss of Canary Wharf, he will tell you that the existence of the enterprise zone incentives was fundamental in the decision to locate Canary Wharf there. I believe the fact that the Docklands Development Corporation was also there with the planning and land assembly was equally important. It is very important to understand that the ingredient that mattered in the Canary Wharf decision was the capacity to write off the property costs. Outside London that would be far less important, but in London, and with the cost of Canary Wharf, it was critical.

Enterprise zones can play their part, and I am in favour of the concept, but I think you need more. Basically, the philosophical analysis I have is that what you are really trying to do with derelict areas is to make them competitive. They are derelict because anyone who could exercise a choice exercised it and went-whether it was the kids of the elderly council tenants in the East End of London who wanted to buy their own homes, or wanted to create a job or whatever, and could not do it in the derelict areas of East London, they went. If you give a house builder a choice of building a house, he will go to the leafy suburbs because the green fields are much easier to develop than the brownfield sites.

So choice is the essence of it. My philosophy is that you have to recognise in some of these derelict areas-the old brownfield sites-that the dereliction costs are such that unless you eliminate them, those sites will never compete with the green fields, so people will always go to green fields. So there is a negative value, in my experience in the main, it can only ever be got rid of at public expense. So you have the public expense argument for making the sites competitive, but then you have the incentive arguments of the enterprise zone, which link in. Both can play a part, and in my view the dereliction elimination is fundamental.

Q47 Chair: Turning back to Whitehall Departments very briefly, before moving on to nonexecutive directors, we had a Minister, Lord Rooker, during an inquiry into what Ministers do, who told us very firmly that many Ministers are under the misapprehension that they are there to run their Departments, but they are not; they are there to provide strategic direction. Do you agree with that statement?

Lord Heseltine of Thenford: No, I do not. I think this is one of the big mistakes; it comes from Victorian England. When a Minister walked into his Department and there were 50 people with quill pens, then you did not need to run your Department because it was there in front of you; you knew exactly what was happening. When I first became a Secretary of State I had 52,000 people. There was no way of knowing what they were doing, so one asks about the management information system and there wasn’t one. So nobody else knew what they were doing either. I came to the view very, very rapidly that it was my responsibility, and that if I did not do it, it would not get done. I still hold that view.

Chair: You must forgive departures from the Committee. We have these mad sitting hours now, and the House sits within an hour and colleagues have their other duties to perform, but we are very grateful for your time.

Lord Heseltine of Thenford: I have been here before.

Q48 Greg Mulholland: May I ask you, Lord Heseltine, about your thoughts on Government non-executive directors? We had Lord Browne of Madingley with us in July. He said that on a scale of 1 to 10, in terms of satisfaction with the contribution being made by non-executive directors to departmental boards, it was about 2 out of 10. Would you agree with that, and why do you think insufficient use is being made of nonexecutive directors?

Lord Heseltine of Thenford: I have talked to Lord Browne about these things and I broadly share his view. I think it is part of the same amateur culture that we were talking about before you were able to join us. This Government decided that they wanted to bring in outside expertise-a 100% good idea. They brought in very distinguished people from the private sector, with very good implementation, but it is in the detail that the problem emerges. Have these guys got sufficient secretarial back-up to do the job that is necessary? Is the management information in Departments upon which they could make judgments available? The answer is no, it is not, and Lord Browne would say that too.

Is there a reporting mechanism whereby these non-execs can report their views to a central point where creative tension is likely to emerge? There is no such place to report, so there are no effective reports. If you go into the detail you find out why Lord Browne comes up with a rating of 2. If you follow my report through, you will find that I close all these gaps and make the job really worthwhile, including the appointment of permanent secretaries.

Q49 Greg Mulholland: You say in your report that the role of nonexecutive directors should be strengthened and formalised. What do you think the barriers are currently in Whitehall to actually doing that?

Lord Heseltine of Thenford: There are no barriers. It could be done; it just has not been done.

Q50 Chair: Why has it not being done?

Lord Heseltine of Thenford: That is not a matter for me. I can only point out what I think should happen. It is entirely a matter for the Government.

Q51 Chair: We hear that some boards are rarely attended by Ministers. In the Ministry of Defence, I believe the board is being used as a barrier to prevent others getting in on decisions. Some boards are completely ignored. One lead director resigned because he was not consulted about the change of permanent secretary. It is chaos. How should this be properly regulated from the centre?

Lord Heseltine of Thenford: My report spells that out in specific terms. First of all, they should have a secretariat. Secondly, each Department should have a report of the sort I have outlined. Thirdly, there should be management information to reveal what is going on in the Department. Then every year the non-execs should report to the central implementation unit, so that the Secretary of State would be consulted about progress with his or her departmental report, but the non-execs would be reporting in at the same times whether they agreed with that. So I have in very clear, precise management terms set out how you deal with these lacunae.

Q52 Greg Mulholland: So it is just for the Government to get on with it.

Lord Heseltine of Thenford: Yes; it is not rocket science.

Q53 Chair: Just moving on to MINIS, your famous system, I was very educated to read your Appendix F, because it looks so remarkably simple and easy to understand. Do you think this could be quickly implemented across all Departments?

Lord Heseltine of Thenford: I think I set a time scale of fully working by the end of 2013. It took me far less time than that. It took me days, or maybe a small number of weeks, to get an organogram for the Department. It did not exist, but certainly within a very short period of time I got an organogram, which indicated where the frontline managers were. In the Department of the Environment I think there were 57 or 59 of them. Then, having got that, I was able to say, "Each of those will produce the MINIS document." It took months to do. I am not complaining about that because it requires an analysis on a timesheet basis of what civil servants are actually doing, so you have to spend months getting the analysis before you can summarise it.

Q54 Chair: So you would look at 57 pages of MINIS information every month?

Lord Heseltine of Thenford: No, it was an annual report based on what the civil servants had been doing for the past six months.

Q55 Chair: We are looking at the Cabinet Office Report and Accounts, which is about as informative as a party manifesto. Do you think Government Departments should be providing Select Committees with this information unabridged?

Lord Heseltine of Thenford: If we are talking about the information that I am interested in, which is the MINIS information, it should be published. I did publish it. Curiously enough, this was one of the more disappointing aspects of my reforming agenda, because I thought that if I published this it would create an informed debate about what was going on in Government Departments. Of course it was hugely detailed. It produced no debate at all because the press were not in the least bit interested because it did not create headlines.

Q56 Chair: Do you think that is why it fell into disrepair?

Lord Heseltine of Thenford: No, I think it fell into disrepair because it is a bore for all the people who have to take part in it, as all management systems are. It is much better not to have to account for what you are doing.

Q57 Chair: So how do Ministers and officials know what is going on in their Departments if they do not have a MINIS type system?

Lord Heseltine of Thenford: They do not; there is no way of knowing.

Q58 Chair: So you are saying that Ministers and senior officials in Government Departments do not know what is going on in their Departments?

Lord Heseltine of Thenford: They cannot; there is no way they can. They will know that this particular initiative is on their agenda and they are progressing it. But if you say, "You have got 1,350 civil servants working in this Department; what are they doing?" there is no answer to that question.

Q59 Chair: Do you think Select Committees could demand this information even if Ministers do not want it?

Lord Heseltine of Thenford: They certainly could, they certainly should and the PAC did, but it did not get anywhere.

Q60 Chair: We will follow that up. What do you make of the departmental business plans? Are they any substitute for this?

Lord Heseltine of Thenford: I have not seen a business plan that comes close to the management information system that I want.

Q61 Chair: They are a checklist of things, are they not?

Lord Heseltine of Thenford: That is no good. The object of the exercise is to say, "We employ 1,350 civil servants, paid x per person. They spend their time doing this; they were told to do it by so-and-so. This is the objective. These are the outcomes. This is the rate at which we are achieving it."

Q62 Chair: I would be very grateful if perhaps we could have an informal conversation with our Scrutiny Unit about how we could request this information from Government Departments.

Lord Heseltine of Thenford: I wish you well. It has been done before by the PAC. It took me a lot of time to find the MINIS documents, they disappeared somehow or other, but I now have managed to find them. They followed me from one Department to another, and when I left, they went.

Q63 Kelvin Hopkins: Lord Heseltine, if I may refer back to something you said earlier, that Ministers should be drivers of this Rolls-Royce machine, that is an image I like, I like that idea. However, Prime Ministers do not like that at all. We recently had a reshuffle where the Prime Minister sacked Ministers who I, speaking as somebody on the left of the Labour Party, thought were very competent and doing a good job in Local Government, Education, BIS, Energy and Justice. They have just been replaced by people who do not know so much about their subject. So you have a good driver and replace him with someone who does not really know where they are going. Is that not what actually happens?

Lord Heseltine of Thenford: I cannot possibly comment. Genuinely I do not know the people concerned to have any means of evaluating the reshuffle. As you know, reshuffles are highly political activities. Prime Ministers have nightmarish decisions to make. They have to keep the show on the road, and that is not just all about who did what.

Q64 Kelvin Hopkins: Does this not undermine strategic thinking and activity in Government?

Lord Heseltine of Thenford: My own view is that if one had the sort of systems in place that I am talking about, it would not have anything like as much of a disruptive effect. If a Government Department had a policy document, which was in some detail, the arrival of a new Minister would not change that unless they got agreement to change it. Under the present situation, all sorts of things can happen. First of all, they can change it, if it does not affect other Departments, without much outside scrutiny. Secondly, they can just let things lie fallow because there is no creative tension asking for a monitoring process. That can be equally devastating: just leaving initiatives to wither on the vine.

Q65 Kelvin Hopkins: Prime Ministers, it seems to me, would like to see Ministers kept under control, off balance and not there too long so they do not actually get a grip of their Departments. Is this not a major factor in our not doing very well when it comes to strategic thinking?

Lord Heseltine of Thenford: I do not go with your reasons. I think the real issue today is about how a Prime Minister can cope with the pressures to which they are subjected. This is a very worrying problem that is getting worse, from what I see as an observer of the scene. The first place that a crisis bears in on is No. 10. People do not go to the functional Departments or the Foreign Secretary, but go straight to No. 10, 24/7. That is an incredible burden. Decisions have to be made so fast about everything or it is said that the Government is out of control or the Government is dithering, so they have to make these decisions.

The second thing that is happening, and again it is part of the same process, is that the international world today has got telephones, and they use them. Instead of an awful lot of international activity being done diplomatically through the Foreign Service, it now goes straight, phone call to phone call, to heads of state, and that is another huge pressure.

Then there is the international circus. I have just watched the places where the Prime Minister has to be in the course of a day or a week, and the physical strain of that is out of any accord to anything that has ever happened before. I have to say that I think the growth agenda is the key thing and the Prime Minister has to be the key driver of it, but as I say it, I just remind myself what his life is like and what pressure he is under. Can it be done? My own view is that you have to institutionalise the process and recognise that that will not mean the Prime Minister is actually taking the decision every day and every week, because they cannot do it.

Q66 Paul Flynn: There is another Committee in this House that is looking at reshuffles now. Some of the surprising evidence is that the reshuffle is a British disease. One senior civil servant said he had great difficulty explaining to a German delegation what a reshuffle was. They have had less than half a dozen since 1947. Part of it, as Mr Hopkins has said, is that in the last reshuffle there was one particular Minister who is mature, experienced, intelligent and a reformer, who was replaced by someone who is none of those things. It was suggested it was a question of replacing old lace with arsenic. But isn’t the imperative of the Government, sadly, the result of the election in 2015? It has to be. It has to present an image and a team that will be acceptable to the tabloid press.

Lord Heseltine of Thenford: I would not use those rather dramatic words. The Prime Minister has to keep the show on the road. They are the pinnacle. There is a vast turmoil of opinion, activity, events and party arguments, the northsouth profile, male and female-all these things going on in the microcosm of Parliament. The Prime Minister has to continue to maintain confidence over that machine.

Q67 Paul Flynn: But we are disrupting the stability of Government in a way that no other Government does. It is not a tradition anywhere in the Europe or in the world to churn Ministers and permanent secretaries in the way that we do here.

Lord Heseltine of Thenford: This House demands of its Ministers a presence and an accountability that you would not find in other equivalent economies on anything like the same scale. Prime Minister’s Question Time is not replicated anywhere else. I know enough about Prime Ministers to know that Wednesday morning is blocked out. That is quite a bit of the week blocked out. They do not know what they will be asked, they could be asked about anything in that half hour. Another example, which again I refer to it in my report, are the Parliamentary Questions, where you have a relatively small row. In go the Parliamentary Questions, and out of the officials minute-by-minute detail is expected of any event or conversation or whatever it may be surrounding that event five years ago. If you applied that to a discipline of the private sector you would bring the private sector to its knees, but that is what this place wants. We are a parliamentary democracy, and if this place wants that it will get that.

You could argue, on the same sort of theme, that Members of Parliament are here to take broad, strategic views about the national interest and about national politics. A huge proportion of Members of Parliament are actually surrogate local councillors.

Q68 Kelvin Hopkins: This brings me on to my real question. Which countries around the world do you think best exemplify the kind of partnership between Government and industry that would be desirable?

Lord Heseltine of Thenford: Germany would be well ahead of quite a few. The danger of trying to answer that question is that none of the other countries are the same, and so they do it in different ways, but they all do it in their way. Take the most remarkable transformation of a society which I have ever seen, which is China from the ’70s to today, 40 years on. That has been completely dominated by central Communist party bureaucrats. It is an incredible thing. I have been visiting China since the 1970s and I have seen the process unfold. They worked it out, they planned it, they said they were going to do it, and they have done it. It blows all the simplistic notions of it being public or private sector or whatever it may be. They have the most sophisticated processes. We could not begin to replicate them here, and should not. Germany has a different history.

Q69 Chair: A different psychology.

Lord Heseltine of Thenford: A different psychology, but immensely effective in their way. Wherever you look you can find it. It has gone wrong for the Japanese now, but a huge capability was developed there, working together. Korea is doing the same.

Q70 Chair: What about the United States?

Lord Heseltine of Thenford: The United States is, of course, seen as the exception, but it is exactly the same. The weight of money the state pours into industry in the United States through the space programmes, the defence programmes and through the Small Business Administration, and indeed through their political processes. The lobbying processes of Congress are immensely supportive of industrial activity. America has got a very sophisticated process.

Q71 Chair: This Committee has people on it, such as Mr Flynn who has left, who are immensely hostile to lobbying. Do you see lobbying as possibly a beneficial process?

Lord Heseltine of Thenford: I do not see how you avoid it. What is democracy about if it is not articulating interests and their resolution through a political process? If you say by lobbying you are paying someone to do it, equally you pay someone to advise you about your health, your school or learning to drive a car. There are always professionals there to help you do it better. I cannot find anything wrong with that; it has to be open. Lobbying is one thing; corruption is another, and they are not necessarily in any way linked.

Q72 Kelvin Hopkins: I agree with you; Germany was the first country you mentioned and it comes to mind. It is a good comparator because Britain and Germany ostensibly should be very similar countries, but since the Second World War, Germany has protected, looked after and advanced its manufacturing sector so that it is now more than twice the size of ours as a proportion of GDP. They have a gigantic trade surplus and we have a gigantic trade deficit. They have got it right and we have not. Would you not think that the things they have got right are macro-economic policy, for a start-making sure they started off with a currency that was undervalued to give them a competitive edge-then using national procurement, education and training in a very interventionist way? Britain has fallen behind. We are now 28th in the league table of mathematics ability. Half our population do not understand what 50% means. We have serious problems. This is all because we have not done the kind of things that they do in Germany.

Lord Heseltine of Thenford: I think you are wrong about the currency. The d-mark was constantly appreciating, whereas the pound was constantly depreciating. But the Germans improved their productivity to enable them to live with the strengthening of the currency. That of course has not been the case with the euro, where there has been a German devaluation, but the history of the last 50 years is about a strengthening d-mark, not a weakening one.

Other than that, they just have looked at the problems, and sought and found solutions to them. Wherever you look, the interrelationship between the German Länder and the German cities, the private sector and the educational establishment is highly professional. You can point to endless examples in this country where we have not applied the same rigour to the problem.

Q73 Kelvin Hopkins: I have my own views about why Germany has been successful and we have not, but would it not be a sensible thing just to look at what Germany has done and try to start imitating it now?

Lord Heseltine of Thenford: My report does that. However, it is not just about Germany; it is about the whole relationship between the public and private sectors, between Government and the locality. I covered this subject earlier, but Germany is a federation, historically, for fairly obvious reasons, but it works like that and so it has got devolved initiation, whereas we have central impost. That takes the competition out of it, and it takes the placebased analysis out of the initiation. I am totally cynical about the idea that, having taken all this power away from the great city states of our country and focused it on bureaucracies in London, those bureaucracies do it better. There is no evidence at all to suggest that London quangos and bureaucracies are more sophisticated than they would have been if we had retained the strength in places such as Birmingham, Manchester, Newcastle, Cornwall and Devon.

Kelvin Hopkins: I will come back to my original question from earlier in the meeting about Britain being wedded to an ideology. We are really serious about globalisation and markets, whereas other countries are not. The Prime Minister has warned that we must never do as some countries do, which is to use protectionism in the form of, if you like, devious public procurement techniques. We eschew that and say, "Oh no, let the market govern", and we suffer as a result.

Q74 Chair: The Prime Minister’s words were that we must not allow "a modern industrial strategy to be a cover for protectionism".

Lord Heseltine of Thenford: I agree with that.

Q75 Chair: But that seems to be a reason for rejecting part of your report.

Lord Heseltine of Thenford: I do not think so. If you were saying, by protectionism, that we find different companies, and we then buy from them products that are inferior or at a higher price, then we are just storing up trouble. At its worst, that was the nationalised industries, where we took them out of the competitive marketplace in the 1940s.

If you were to say this company is not doing well and this industry is not doing well, and the Government asks why and has an informed debate, and it is discovered that the education system is not producing the quality of kids that you need, or the apprentices are not there on the scale that is required, or the engineers cannot be found because we do not produce enough of them, then an industrial strategy would say, "We had better talk effectively about how we address those particular issues."

Q76 Chair: Can you give an example? How did we end up buying Thameslink trains from Siemens in Germany?

Lord Heseltine of Thenford: You would have to have been around in the Ministry when these concepts of needing new trains, new railways and so on were happening. This is a very good example of what an industrial strategy would amount to. Years ago it would have been apparent that large contracts for trains would be in the offing. There is nothing new about any of this; we all knew that Crossrail and all these things were coming. At that stage you could ask, "Who would make them in this country?" You could point to the local industry and ask whether they were up to it. If they were up to it there would not be a problem, but if they were not up to it solutions would have to be found.

In the automobile industry we brought the Japanese assemblers in. It took a long time, but it has worked. We now have a very significant industrial automobile sector. We did not do it with trains; why not? We just did not do it; there is no good answer to that. With the aerospace industry, it was exactly the opposite. There has been a very close relationship between Government and industry and it has worked. It is fair to say it has worked in very large measure because the French created Airbus, and we have gone in on the wings. If we had not gone in on the wings, and Rolls-Royce had not done the brilliant job they did in developing the engines, it would all have been very different. There is no immediate way in which you can say that we are like another country. What you know about the French is that they are the only country to have launcher capability. They have created the Airbus. They are the only nuclear power in Europe. They own great slugs of our utilities in this country.

Q77 Kelvin Hopkins: Exactly. I have to say I disagree with you about public ownership and what happened. The water industry was privatised and investment was cut back. We now have leaks, and the price of water in Britain has doubled in real terms since privatisation. It has a very poor record compared with the water industry in other parts of the world, which is publicly owned. Over 90% of water is publicly owned across the world. Only in Britain was it privatised and it was a big mistake. And Rolls-Royce was nationalised to save it from collapsing. It is a wonderful company, but it had to be nationalised because they had a technical problem at that time.

Chair: The suspicion of my Conservative colleagues is that you are dragging us back to state corporatism.

Kelvin Hopkins: Yes, a very good idea.

Lord Heseltine of Thenford: I completely disagree with your analysis, as you would expect. Rolls-Royce is interesting. I know why Rolls-Royce went bust. It was not because it had a technical problem; it was because the Americans had developed the CF6 for the American defence budget. They needed a powerful engine for their defence capabilities, and they paid for it through the taxpayer. There was no defence requirement in this country for such an engine, and Rolls-Royce made the decision that they would go it alone; they would finance it privately out of their own resources and it bust the company. The Government of the day had to decide what to do. There was a simple choice. You could just say, "The company has gone bust. It is nothing to do with us. They have gone bust and someone will buy them up." And they would; the Americans would have bought them up. The Government, of which I was a member, said, "No, this is a national asset and we will rescue it." They did rightly, and it has been a triumph. So trying to get dogma into this just upsets me.

Q78 Kelvin Hopkins: But they are pragmatic things. Look at the energy sector. Four out of six energy companies are foreignowned. They are clearly exploiting the British market to subsidise their own consumers and taxpayers. One of those companies is not even privately owned. EDF is 85%owned by the French Government. It is a nationalised industry owned by a foreign Government. Clearly the energy policy is a mess simply because we do not have sufficient strategic control of our energy sector.

Lord Heseltine of Thenford: Let me just say one other thing, because one or two members of this Committee are perhaps not of my party. When I came to write this report I made another decision: that if we could find some basis upon which we agreed as much as possible on a transparty basis, it would be a step forward. So I deliberately set out to consult the TUC, the Labour Party and of course the coalition was representative of the other two parties. My report has gone as far as it practically could to avoid party political clash. If you are trying to run a sophisticated economy, the party clash that immediately says, "Whatever the Government does is wrong and we will undo it" is a major destabilising process. It used to be appalling when I was first here. It is now much less so. There is much greater accord between all parties as to what growth and all that involves. So I have tried very hard to preserve that situation; that is not to say that you can do it absolutely, but it is fair to say that the Labour Party in opposition has been pretty constructive about my report.

Q79 Kelvin Hopkins: I agree. I think it is a step forward from where we have been but I would like to go much further. I have just one more question: I was in the Commons debating the economy 10 days or so ago, and the Minister said there seemed, in this particular area, to be a consensus between the three main parties, and this was a wonderful idea. It is fine as long as the consensus is right, not wrong. If there is an alternative view, which I certainly take myself, which is being squeezed out because it does not fit with the spirit and ideology of the times. That might be right, we might sometimes have to challenge these consensuses because they might be wrong.

Lord Heseltine of Thenford: Of course, and my party would be the first to do that if they were in opposition and they disapproved.

Q80 Greg Mulholland: Lord Heseltine, your report was warmly welcomed in what is still termed as the regions, and I can particularly speak for the north of England. As you know, Leeds is a very successful city and the economic driver for the region, but it has been hampered for years by not having genuine decisionmaking powers on budgets. You were very strong in your calls for the genuine devolution of not only power but also serious budget devolution. Do you think any Government here will ever have the courage to do that?

Lord Heseltine of Thenford: In one hour and 25 minutes you will know.

Q81 Chair: Lord Heseltine, you have been very generous with your time. I have one or two supplementaries. Do you know about the Skylon project? It is a new rocket jet engine that can fly in hyperspace. It has hypersonic speeds. It is a British project, it has been developed at Culham, and it is in danger of being sold to the Americans.

Lord Heseltine of Thenford: Yes, I have heard about it and people have told me about it, but I could not begin to answer questions.

Q82 Chair: Is this the type of thing the Government should want to support if it is the least bit viable? It is British technology; it is worldbeating technology.

Lord Heseltine of Thenford: If I was Secretary of State, I would hope I would know the details already, but I would certainly explore. There is no doubt at all that the Government does and rightly should back technological advanced projects.

Q83 Chair: The Government’s attitude at the moment is that this is a matter for markets to decide. If a foreign buyer comes and buys it, so be it; this technology then goes abroad, and that is a matter for the market.

Lord Heseltine of Thenford: I would not use those arguments. It so often is not a question of markets.

Q84 Chair: Coming back to the question about how much of our energy infrastructure is owned abroad, and how much British industry has been sold abroad, what happened to GEC, for example, when it was sold to Siemens? It just ceased to exist. What has happened to Marconi when it was taken over? Should we not be a bit more proprietorial about some of our leading industries, particularly where they have technology? Should we not want to protect British intellectual property and make sure it is maintained in British ownership?

Lord Heseltine of Thenford: I think there are good questions along those lines. The Marconi one I feel particularly because, I mentioned earlier, it was my idea to create the European Space Agency. The deal that I was briefed to do and did do, was rejoin the launcher, because that was what the French wanted, rejoin post-Apollo, because that was what the Germans wanted; and get the satellite leadership for the UK, which is what our companies wanted. I achieved all three, and the satellite leadership came to the UK, but it was ultimately acquired by Marconi, and ultimately acquired by the French.

Q85 Chair: Were you a bit relieved when British Aerospace was not bought by EADS and the headquarters moved off to Munich?

Lord Heseltine of Thenford: No. There is only one place that secures Britain’s aerospace future, and that is the partnership with the French and Germans through EADS.

Q86 Chair: Finally, is the airports policy a failure of strategic thinking in Government?

Lord Heseltine of Thenford: No. I explore this very fully in my report. It is politics; the Government gave a very clear commitment that there would be no third runway. They cannot just say, "We did not mean that." So they cannot undo the commitment until the next election, but I did think that there might be a way in which they could leave the final decision until after the next election, but do a lot of preparatory work, if they can make up their mind where to go.

Q87 Chair: That might be a different airport. I am rather a fan of the Thames estuary airport.

Lord Heseltine of Thenford: I did not opine on that because I am not qualified to do it. I believe that Howard Davies should produce his report as quickly as possible and then we can have a debate and reach a decision as early as possible.

Q88 Chair: Thank you for that. In less than a few hours, we will hear the Government’s response to your report. What question would you like me to ask the Chancellor if I get an opportunity?

Lord Heseltine of Thenford: You are a very ingenious fellow; you do not need my help. Can I be frank? I have an appointment.

Chair: Lord Heseltine, you have been very, very generous. Thank you very much for your time. We are very grateful.

Prepared 25th February 2013