House of Commons - Sustainability in BIS - Environmental Audit Committee

Sustainability in BIS - Environmental Audit Committee Contents

3 Policy making

11. Under the Government's plans for embedding sustainable development in policy-making, it has sought to utilise the new business planning system for setting objectives and monitoring progress. The Government's February 2011 Vision document described the use of that system for reviewing departments' adherence to sustainable development principles. Defra would provide analysis of the Plans for the Minister for Government Policy and the Chief Secretary of the Treasury, who would then hold departments to account through quarterly review meetings with the relevant departmental ministers.[29]

12. The first set of business plans was completed in November 2010, and have been 'refreshed' annually to reflect evolving Government priorities. Each is required to cover the vision of the department, planned actions and deadlines, departmental expenditure data and information on the department's actions to increase transparency.[30] An annex to each Plan covers the department's overall goal on sustainable development; its plans to assess and manage environmental, social and economic impacts; how the department will implement its Greening Government Commitment targets and its headline Sustainable Development Indicators.[31]

13. In our June 2013 report we concluded:

The Business Plan review process has a significant weakness in that it does not seek to address potential policy gaps, where new initiatives could tackle unsustainable development. The reviews examine the policies that are added to the Plans after being negotiated within Government, rather than policies that should be generated as a result of applying sustainable development thinking from the outset. For the policies that the process does review, the system remains opaque to external scrutiny, but presents an important opportunity for the Cabinet Office, with Defra support, to focus departments' attention on the sustainability of their policies.[32]

For policies that do come forward and are examined, we concluded that the key test of the system's effectiveness would be the extent to which policies were adjusted and improved while in development.[33]

14. Making policy-making sustainable also requires effective policy appraisal and officials having the skills and training to apply those disciplines. We noted in June 2013 that guidance for departments on policy appraisal and impact assessments had been improved to reflect the need to address sustainable development, and civil servants' skills requirements were being strengthened in these disciplines. Defra, we concluded, needed to use the results of an audit of impact assessments to develop the guidance further, and Defra and the Cabinet Office must challenge departments' non-compliance as part of the Business Plan reviews.[34] Since our report, the Government has begun to examine the results of the audit and the need for any improvement in the policy appraisal guidance or in "capability building".[35]

15. Against that background of Government-wide developments, the NAO examined the position in BIS. The NAO's briefing included an analysis of the potential impacts of BIS policies and examples of the range of initiatives within the Department which are intended to promote its principal aim of facilitating sustainable economic growth.[36] The NAO concluded that BIS could do more to assess the range of impacts associated with its activities on a systematic basis, identify priority areas for embedding sustainability, and consider the potential for mitigating potential negative impacts.[37] The NAO noted that while it was carrying out its audit, on our behalf, BIS had started to undertake an assessment of its objectives and policies to identify priorities for embedding sustainable development, and areas where potentially unsustainable impacts in might be mitigated.[38] All departments should examine the NAO's analysis of policies in BIS, to produce a similar analysis in their own departments in order to identify potentially unsustainable policies and to provide a baseline for reviewing and adjusting those policies.

16. The lesson for BIS is that increased economic growth (an aim underpinning much of its policies) can have both potentially good (eg. increased employment or social cohesion) and bad (e.g. emissions) sustainability consequences, and that policy-making needs explicitly to recognise and address those tensions. The NAO examined such issues in the policy appraisal of three case examples—the Regional Growth Fund, higher education funding reform (including student fees changes), and the Government's Industrial Strategy—which we discuss below.

Regional Growth Fund

17. In its June 2010 Budget, the Government announced plans for a Regional Growth Fund "to support increases in business employment and growth".[39] It was part of a package of measures which also involved the abolition of the Regional Development Agencies and the creation of Local Enterprise Partnerships.[40] The Regional Growth Fund is open to businesses seeking to create jobs in areas vulnerable to public sector job losses. The Fund's specific objectives are "to encourage private sector enterprise by providing support for projects with significant potential for economic growth and create additional sustainable private sector employment; and to support in particular those areas and communities that are currently dependent on the public sector make the transition to sustainable private sector led growth and prosperity".[41] An NAO report on the Regional Growth Fund in 2011 found that applications for grants were scored according to the relative vulnerability of the location to public sector job losses by measuring local unemployment, the local share of public sector employment, the extent of private sector jobs growth and the number of active enterprises.[42]

18. There have now been four rounds of bidding for Regional Growth Fund grants (fourth round winners were announced in August 2013), and a fifth round was announced in October 2013.[43] The NAO assessed the first two rounds in May 2012 and calculated that the scheme at that point had secured 41,000 jobs at a cost of £33,000 each—broadly similar, the NAO found, to previous regional development policies.[44] The impact assessment for the scheme identified a quantifiable gross benefit of £5.7 billion,[45] or £4.3 billion net of the costs of the Regional Growth Fund outlays.[46] (The overall package of measures, including the abolition of the Regional Development Agencies and the creation of Local Enterprise Partnerships, had a net cost.[47])

19. The NAO's recent briefing concluded, however, that other than the 'social' benefit derived from greater employment levels, only the economic pillar of sustainable development was considered in the policy impact assessment. No assessment was made of the impact of the scheme in terms of furthering a green economy—a major policy priority in the BIS Business Plan.[48] BIS told us that when the Regional Growth Fund policy was first developed there was "discussion across Government" to set its objectives, and that sustainability was not "specifically one of the criteria" but rather a "specific footnote" that "economic growth should be underpinned by environmentally sound principles".[49]

20. The Regional Growth Fund budget was originally split between Defra, BIS and DCLG.[50] We asked BIS, who now manage the budget, about the extent to which the environmental or social pillars of sustainable development were considered in awarding Regional Growth Fund grants. They told us that they monetised such factors where that was possible from the information provided in the grant application form, and passed that assessment to the advisory panel deciding on the grants.[51] However, the application form for the scheme includes a section which asks about potential "social or economic benefits", seeking information specifically on "benefits to the environment, improvements to transport networks and journey times [or] scientific advances" (our emphasis), rather than disbenefits.[52] Another section asks about equality impacts in terms of sex, race, disability, and sexual orientation, but not also for income or wealth inequalities.[53] BIS told us that "the application form is designed to be light touch and is therefore deliberately concise".[54]

21. While Regional Growth Fund processes seek to measure and assess environmental or social benefits, BIS did little to establish or quantify whether there are disbenefits that might understandably be absent from completed application forms. BIS should revise its Regional Growth Fund assessment process to incorporate potential environmental and social costs and disbenefits, and weigh these fully in considering applications for grants. Defra and the Cabinet Office should challenge other government departments to ensure that on any similar grant allocation policies they collect information on all pillars of sustainable development and fully take it into account.

Higher education funding reform

22. The NAO also examined higher education funding reform, involving the raising of student tuition fees to partially offset a reduction in BIS grants to universities. We examined the sustainable development aspects of this initiative in terms of its inter-generational equity, including the extent to which such factors were taken into account in developing the policy. The NAO's briefing explained that BIS did assess the question of inter-generational transfer of debt associated with the higher tuition fees:

Departmental analysts considered this issue but came to the conclusion that individuals should not be adversely affected by the potential liabilities involved. This was based on the fact that repayments are dependent on income, and on the Department's view that such debts will not count towards credit ratings. The latter was based on information from the Association of Mortgage Lenders which indicated that student debt does not affect their ability to get mortgages.[55]

23. However, the obligation to repay student loans did reduce the size of any mortgage available.[56] The impact assessment for the policy took account of the 'graduate premium'—the £100,000 additional lifetime income for graduates[57]—and BIS highlighted that the fees were still less than the cost and that overall the Department would not get back the 'full value' of the loans made.[58] BIS, nevertheless, are planning to reassess the sustainability of the higher education funding reforms next year.[59]

Industrial Strategies

24. The Government has published 'Industrial Strategies' for 11 sectors, including several with particular environmental sensitivity: for offshore wind[60], oil & gas[61], nuclear[62], aerospace[63], automotive[64] and construction.[65] The NAO told us that the Government had not published a business case or impact assessment setting out the potential benefits and costs of the initiative overall, or for the individual sector strategies, "nor is there any overarching commitment to ensure that the industrial strategy promotes green growth".[66] The Secretary of State set out the logic for having such Industrial Strategies, however, in a speech in September 2012 where he said:

There are two basic propositions. The first is that it necessary to plan for the long term. The second is that the government can and must work together to deal with genuine market failures, where the benefits of education or the costs of environmental damage for example are underestimated by markets.

... [there will be] strategic deals with business and a cast-iron commitment, right across Whitehall, to identifying and dismantling the barriers to growth.[67]

25. BIS highlighted examples of how environmental or social aspects featured in particular Industrial Strategies, for example the need for more fuel efficient vehicles in the Automotive Strategy, and jobs and affordable housing in the Construction Strategy.[68] We note, nevertheless, that each of the Strategies for nuclear, oil & gas, and offshore wind focus on how those individual sectors might be supported without addressing the optimal mix of energy types for sustainable development. The various strategies envisage maximising the output of UK industry in their particular sector, with for example the Oil & Gas Strategy aiming to maximise output from the North Sea,[69] and the Aerospace Strategy maximising UK aircraft manufacturing. When they are taken together as a whole, the approach of individual Industrial Strategies, which simply seek to maximise industrial output, has environmental consequences which are inadequately considered. BIS should review its Industrial Strategies to ensure that they represent a sustainable development approach across the 11 sectors as a whole. If necessary, it should redraft and reissue them to demonstrate where and how the Government has made any trade-offs between economic growth and climate change mitigation.

26. The NAO told us that the BIS Business Plan cited no actions on the transition to a low-carbon economy apart from the Green Investment Bank and the compensation scheme for the energy costs of energy intensive industries.[70] Similarly, BIS's August 2011 Enabling the Transition to a Green Economy, which we discussed in our 2012 report on the Green Economy,[71] contains only one commitment for BIS, relating again to the establishment of the Green Investment Bank.[72]

27. The Industrial Strategies appear to be disconnected from the BIS Business Plan process, weakening the main vehicle by which Defra and the Cabinet Office challenge the sustainability-proofing of BIS policy-making. BIS should review its Business Plan, to identify and reflect action commitments contained in the various Industrial Strategies.

29 Embedding Sustainable Development: An Update, HC 202, op cit Back

30 ibid Back

31 ibid Back

32 ibid Back

33 ibid Back

34 ibid Back

35 Fourth Special report, HC 633, op cit Back

36 Departmental Sustainability Overview: Business, Innovation and Skills , op cit, Figure 7 Back

37 ibid Back

38 Departmental Sustainability Overview: Business, Innovation and Skills , op cit, para 2.3 Back

39 HM Treasury, Budget 2010, HC 61, p3 Back

40 Departmental Sustainability Overview: Business, Innovation and Skills , op cit, para 2.7 Back