Appendix: Government response
Summary
On 28 October 2014, the House of Commons Select Committee
for the Department for Business Innovation and Skills published
a report, including recommendations. This followed an inquiry
into the impact of the extraction of minerals, oil and gas both
in the United Kingdom and across the world (HC 188).
The Government has carefully considered the recommendations
made in the Committee's report. We are grateful to the committee
for making these recommendations and for moving the debate on
the extractive industries forward.
The Government is committed to returning the UK economy
to long-term sustainable growth. This means working with those
sectors that develop a strategy including, as recommended by the
committee, the UK domestic extractive companies outside the Oil
and Gas sector.
The Government is committed to ensuring that UK firms
maintain the highest standards of business conduct, this includes
paying the correct amount of taxes in both the UK and overseas.
We are dedicated to the commitment we made during our G8 presidency
to support the work of the OECD to ensure that this becomes a
reality. In addition, the UK has some of the highest standards
for transparency and corporate responsibility, and we intend to
remain at the forefront of this agenda.
We thank the Committee for recognising the importance
of the Extractives sector and its contribution to the UK economy.
Access to qualified and motivated people is a vital
component of a successful mining industry. We are working, with
business, to ensure that the UK has sufficient Science, Technology,
Engineering, and Mathematics (STEM) graduates to make the UK attractive
to any industry, which needs these skills through, for example,
the Your Life campaign.
We are delighted to say that the UK has had its candidacy
for EITI accepted and we are actively working with other governments
and organisations to encourage other countries to adopt these
standards to bring information to more citizens and level the
playing field for business internationally to support global growth.
Responses to Specific Reconditions
RECOMMENDATION 1: INDUSTRIAL STRATEGY
The Government has expressed support for the
enlargement of the UK's domestic extractive sector. However, it
is unclear how the Government intends to promote the growth of
this sector. We recommend that the Department publishes a domestic
extractives plan setting out the extent and range of its support—both
structural and financial—and how it intends to realise that
ambition. We welcome the Minister's offer to meet with industry
and deal with roadblocks. We further recommend that the Government
sets out in its response the best mechanism for taking this forward.
(Paragraph 15)
Response
Returning the UK to sustainable and balanced growth
is a key priority for the Government and Industrial Strategy is
a core part of the long-term economic plan. Industrial Strategy
is about the whole of Government working in partnership with industry
to set out and deliver long-term plans to secure jobs and growth.
It has five strands: procurement, access to finance, technologies,
skills, and sectors.
A number of the industrial strategy sectors rely
on mineral products and we would expect that the mining sector
would therefore benefit. This is particularly the case for construction,
where approximately two thirds of the minerals produced in the
UK are used. To help the construction sector, including the UK
mineral products industry, take full advantage of the growth in
construction markets the Government published the National Infrastructure
Plan (NIP) and Construction Pipeline.
The National Infrastructure Plan 2014 sets out an
ambitious infrastructure vision for the next parliament and beyond,
reinforcing the government's commitment to investing in infrastructure
and improving its quality and performance. It is underpinned by
a pipeline of over £460 billion of planned public and private
investment. The latest iteration, the 8th, of the Construction
Pipeline, with future construction investment opportunities worth
£127bn from 2014/15 to 2020 and beyond, was published on
22 December 2014. Construction products and materials are a key
part of the construction strategy and we are keen to work with
the UK minerals industry to help ensure it is well placed to take
advantage of these sizeable markets.
Chemicals, rail, nuclear, oil and gas are all examples
of other sector strategies which if successfully delivered will
have a positive impact on the growth of the UK's extractive sector.
There is a variety of work underway as part of the
industrial strategy. This includes work on procurement, access
to finance, technologies, skills and sectors as well as reforms
to the planning process. We recognise the importance of mineral
products in supply chains and these are covered by existing sectorial
strategies, particularly in construction. As part of industrial
strategy, it is important that businesses within each sector come
together to identify long-term priorities for the sector as a
whole. We understand that the Minerals Products Association is
developing a strategy for the sector and look forward to discussing
the priorities with them. We believe these represent a coordinated
approach to supporting growth in the UK's extractive industries.
The Government therefore does not intend to publish
a domestic extractives plan as proposed by the Committee.
Ministers will continue to meet regularly with businesses,
and we are happy to discuss issues of significant concern to the
minerals industry, as and when the need arises.
For example we have recognised planning concerns.
The planning system plays a key role in facilitating growth of
the sector by ensuring there is an adequate supply of minerals.
Government has simplified the planning system through the National
Planning Policy Framework, replacing 13 previous national mineral
policy statements within a 50 page document. We are also supporting
the industry by speeding up the determination of minerals planning
applications and encouraging Mineral Planning Authorities to get
local (mineral) plans in place.
RECOMMENDATION 2: INDUSTRIAL STRATEGY
The Government has focussed its Industrial
Strategies on areas where it can have a greatest impact on the
UK economy. However, we are concerned that these strategies do
not currently offer explicit support to the extractives industry
beyond oil and gas. We recommend that the existing Industrial
Strategies be amended to take into account energy policy in the
UK, upon which a large section of the extractives sector is reliant.
That policy should explicitly take account of the UK's domestic
extractive sector and the Government should consider other strategic
minerals such as potash and rare earths.
(Paragraph 16)
Response
As the Committee notes, Industrial Strategy is focussed
on areas with greatest potential positive impact on the UK economy.
We do not believe that revising all the sector strategies that
sit under Industrial Strategy with a particular focus on energy
policy would either be a proportionate or effective means of helping
the extractives industry or industry more widely to grow. Moreover,
it would undermine the guiding "partnership with industry"
principle of Industrial Strategy if government were to impose
such a review.
Through Industrial Strategy, we have agreed, in partnership
with business, priority actions which industry has told us will
have the greatest positive impact on growth. Where energy is a
priority, that is reflected in sector strategies, for example
"securing competitive energy and feedstocks" is one
of three priorities agreed by the Chemistry Growth Partnership
in order to achieve its vision of 50 per cent growth for the sector
by the year 2030, the construction strategy has measures to increase
energy efficient and low carbon construction and the nuclear,
offshore wind and oil and gas strategies are helping ensure security
of supply from a diverse energy mix. We are pleased that the Minerals
Products Association is developing a strategy and look forward
to discussing the priorities with them (including energy policy
should this be one). There are many issues which impact on different
businesses to varying degrees and Industrial Strategy should not
be seen as the vehicle to tackle them all, rather it is intended
to be targeted on actions which will have greatest impact on growth.
Government also continues to work with Energy Intensive
Industries (EIIs), through its joint government and industry project
looking at future industrial energy efficiency challenges—"The
2050 Industrial Energy Efficiency Roadmaps" and further supports
these sectors through the EII compensation schemes for the costs
of EU ETS and the Carbon Price Floor.
RECOMMENDATION 3: MINISTERIAL SUPPORT
When we took evidence from the Minister, it
became apparent that the domestic extractive industry sector crossed
the portfolios of several Ministers. Greater clarity of authority
would be beneficial. We recommend that, in addition to coordinating
and taking responsibility for the delivery of the domestic extractives
plan, the Minister in BIS be given clear responsibility for leading
policy in this area. This must include coordination with the devolved
administrations where appropriate.
(Paragraph 19)
Response
As the committee notes, the UK extractive industry
reaches across many departments, in particular the Department
for Business, Innovation, and Skills; the Department of Energy
and Climate Change; the Department for Communities and Local Government;
and UK Trade & Investment. There will also be relevant contact
in devolved administrations.
Once the Mineral Products Association has prepared
its own strategic approach the appropriate department will consider
if there are barriers that need to be removed to enable progress.
It is important that the sector continue to engage with the relevant
minister who has responsibility for the particular policy. This
will ensure that each issue is given the appropriate level of
consideration by those with the policy knowledge and expertise
in the respective area.
RECOMMENDATION 4: CONCERNS AND RISKS
We heard from several experts that extractive
companies—both domestic extractors and global companies
listed in London—directly contribute to the UK exchequer
in a number of ways. In terms of UK tax receipts, the Government
did not believe that the sector was substantially avoiding its
tax obligations. However, a number of NGOs warned that UK listed
companies may be involved in tax avoidance tactics such as profit
shifting and transfer pricing overseas. The introduction of EU
Directives and registers of beneficial ownership may help to stop
such practices but we look to the Government to take further action
where companies continue to avoid paying taxes overseas in this
way. (Paragraph
33)
Response
The UK Government is determined to ensure that profits
are taxed where economic activities are performed and where value
is created. The UK is fully committed to developing effective,
practical and sustainable measures to counter Base Erosion and
Profit Shifting (BEPS) through working with the G20 and OECD.
The UK was at the forefront of the inception of the project and
continues to be a key player in the project.
The BEPS Action Plan is a comprehensive two year
strategy to update the international tax rules to make them fit
for purpose in today's globalised economy. Key areas for reform
include the rules around permanent establishment and transfer
pricing.
The BEPS project has made good progress and the first
seven outputs have been endorsed at the G20 Cairns Summit in September
2014. The BEPS project is due to finish by December 2015. If we
can achieve our goals, we will succeed in fundamentally changing
the international tax landscape, and shift the balance of the
rules in favour of tax authorities, enabling us to clamp down
on those who refuse to play by the rules.
RECOMMENDATION 5: EMPLOYMENT
More than 34,000 people in the UK are directly
employed by the extractive industries. An additional 21,600 people
are employed if the connected mining support services are included.
The UK clearly has built a strong reputation in supplying services
to listed UK listed companies—including finance, accountancy
and law. Preserving this reputation is key factor in retaining
the UK as a centre for the extractive industries. We recommend
that the Government implements a review of the impact of the global
extractives sector on UK employment and on British workers finding
employment overseas.
(Paragraph 39)
Response
The Committee is right to note the significant number
of employees in the extractive industries in the UK. The extractive
industries clearly benefit—as do all sectors—from
the strength and international standing of the UK's professional
and business services sector. The Government recognises the importance
of the professional and business services sector, and it is working
with the industry within the approach of industrial strategy to
implement actions to support its future growth and development.
This collaboration is focusing on helping firms source the good
people they need to grow, including opening up new apprenticeship
entry routes, and on boosting exports of our excellent UK services
to emerging markets overseas. The Government also maintains a
dialogue with the professional and business services sector to
ensure the UK has an internationally competitive business environment
for these services. Maintaining the UK's standing as a leading
centre of business services may also help attract and sustain
investment from other industries which use them.
In this context, we do not believe that a review
of the impact of the global extractives sector on UK employment
and on British workers finding employment overseas is a priority.
The impact on UK employment is broadly known; as regards employment
overseas, these companies operate in a global market and will
recruit the best talent they can. We will continue our dialogue
with the sector to ensure that the UK retains and enhances its
position as a global centre for the extractive industries.
RECOMMENDATION 6: RISKS TO HOSTING EXTRACTIVE COMPANIES
The extractive industries sector is always
likely to be controversial. Negative impacts on local and indigenous
communities abroad could undermine the reputation of the sector
more widely, including the UK, where many companies are hosted.
We therefore welcome the work being done to increase transparency
and improve corporate governance in the industry—in particular
by organisations such as the Bench Marks Foundation. Notwithstanding
controversies, we believe that the benefits to the United Kingdom
of hosting extractive companies outweigh the risks, providing
that the UK aspires to lead the world in both the transparency
and corporate social responsibility agendas.
(Paragraph 49)
Response
Government agrees with the conclusion that there
are clear benefits to the United Kingdom of hosting extractive
companies. Insofar as the extractives sector raises risks in areas
such as human rights and environmental impacts, it is better that
companies should be incorporated in a jurisdiction with high standards
of transparency and corporate responsibility. In addition to legal
requirements and listing rules, the UK investor community has
a valuable role to play in influencing corporate standards and
promoting long-term, sustainable business models.
RECOMMENDATION 7: LISTING REGULATIONS
The current regulations governing transparency
and reporting in the industry will be enhanced by forthcoming
EU Directives. We believe that the Government should consider
expanding the FCA's remit to include not only oversight of financial
transparency, but also the social, environmental and corporate
governance reporting for companies applying to list on the London
Stock Exchange. If it is not felt appropriate for the FCA, the
Government should determine which body should have the remit to
do so. (Paragraph
58)
Response
We consider the strong corporate governance framework
in the UK a contributory factor to companies who are choosing
to list on the UK market. This framework enables investors to
have confidence that their companies are transparent and accountable.
The Financial Conduct Authority's remit, as set out
in legislation for which Her Majesty's Treasury is responsible,
and objectives were only recently established, and were carefully
considered by Parliament during the passage of the 2012 Financial
Services Act.
The Listing Regime has a clear objective, which is
to provide effective securities regulation based on the disclosure
of information to the market to enable investors to make effective
and well-informed decisions and to support effective shareholder
engagement.
There is already a well-developed regime for the
monitoring of the reporting required of quoted companies on employee,
environmental, social, community and human right issues under
Section 414c(7)(b) of the Companies Act 2006. The Financial Reporting
Council's (FRC) Corporate Reporting Review (CRR) team monitor
compliance with these requirements. Should a reader of the report
consider that the company has not complied with the relevant requirements,
they may submit a complaint to the FRC.
The Corporate Reporting Review will consider the
matter and, if appropriate, will write to the company, asking
for further explanation and information to inform its assessment.
Following its enquiry, for which there are published operating
procedures, and where the complaint is upheld, the FRC may seek
corrective action. This may be additional disclosure or clarificatory
note in the next report but could also be a revision of the report
to the extent that it was non-compliant.
The FRC would hope to achieve this on a voluntary
basis but does have the power to apply to the court for an order
requiring a company to revise its report or accounts. It has never
had to apply to the court as, to date; all cases have been satisfactorily
resolved on a voluntary basis.
CRR proactively review the reports and accounts of
some 300 companies a year. Companies are selected on a risk basis—with
the FTSE 100, being reviewed at least once every three years and
the FTSE 250 every four. All of its enquiries are conducted in
accordance with its published operating procedures.
The government would like to thank the committee
for their suggestion however, considering the recently agreed
remit of the FCA and the work of the Corporate Reporting Review,
we Corporate Reporting Review have no plans to extend the remit
of the FCA or request another body perform an oversight role.
RECOMMENDATION 8: PREMIUM LISTING AND THE ROLE OF
THE SPONSOR
Both the FCA and the Government have acknowledged
the risk of a conflict on interest in the role of a company's
sponsor for a Premium listing. Whilst they indicated that they
were alive to that risk, both must guard against the fact that
the perception of potential misconduct could be as damaging as
the practice itself. The Government should review the role of
the sponsor and consider strengthening the terms attached to the
role along with the range of a sponsor's remit. (Paragraph
66)
Response
The Government is satisfied that there are sufficient
controls in place to deal with potential conflicts that can arise
as a result of the fact the sponsor is paid by the issuer.
In order to remain an approved sponsor, firms must
have systems and controls in place which, amongst other things,
enable them to identify and manage any actual or potential conflicts.
Where there are concerns that a conflict may exist which cannot
be managed, sponsors will consult the FCA for guidance and, if
necessary, the FCA may intervene.
The sponsor regime in its current form was adopted
in 2005, since then it has undergone a number of changes designed
to strengthen and clarify the regime. In the last few years, these
have included significantly enhancing the FCA's disciplinary powers
and clarifying both the scope of a sponsor's responsibility as
well as the FCAs approach to conflicts of interest. Over the last
year, the FCA has also consulted on sponsor competence with a
view to clarifying the expectations of sponsors and reinforcing
the view that the sponsor regime is an expert regime (CP14/2 and
CP14/21).
In the latest consultation (CP14/21), the FCA also
included a call for inputs in relation to sponsor conflicts of
interest. This recognises that various stakeholders may have differing
views on the extent to which sponsors are able to manage conflicts
of interest or the issues that conflicts may present.
We note the Committee's concerns that the perception
of potential misconduct could be as damaging as the practice itself.
The FCA is alive to this risk and the perception of a conflict
is something that is currently covered by their rules.
However, it is important to ensure that the UK regime
is addressing new issues and emerging risks. The FCA has specifically
asked relevant stakeholders to provide views on the perception
of conflict so that they might consider this area further. Depending
on the responses received on this topic, the FCA will consider
whether any further policy work is necessary in this area. Given
the extensive consultations that have occurred in relation to
the sponsor regime in recent years and the current call for inputs
in relation to conflicts of interest, we do not believe there
would be value in performing a further review of the sponsor role
or remit.
RECOMMENDATION 9: A SOCIAL INDEX
There is a demonstrable benefit in the Government
introducing enhanced transparency and accountability in the mining
sector. We recommend that the Government conducts a detailed comparison
of the Socially Responsible Investment (SRI) index (found on the
Johannesburg Stock Exchange) and the FTSE4GOOD index which features
on the LSE. That assessment should demonstrate both the levels
of information which are collected and published and the level
of information companies are required to disclose. The Listing
Authority should consider whether the FTSE4GOOD indices can be
adapted to address transparency in the extractive industries,
or whether a separate Social Responsible Index for extractive
companies is required in the UK.
(Paragraph 71)
RECOMMENDATION 10: A SOCIAL INDEX
Where the requirements in the UK (including
those of the FTSE4GOOD initiative) fall below those in Johannesburg,
they should be strengthened so that investors in the UK have the
same opportunities and information about the environmental and
social corporate governance practices of companies listed in the
UK as they do on companies listed in Johannesburg or other exchanges.
We further recommend that the Government looks to close the potential
loophole in which a company can avoid engaging with the SRI index
by holding a Premium Listing on the LSE.
(Paragraph 72)
Response
Recommendations 9 and 10 are closely related and
I will respond to these together.
Market indices are managed by commercial providers
and operate independently from the FCA's Listing Regime. In the
case of FTSE4GOOD, this is an initiative of the index provider
FTSE International and any strengthening of the FTSE4GOOD index
should be discussed with FTSE International. Therefore adapting
this mechanism would not be a matter for Government or the FCA.
In relation to the Johannesburg Stock Exchange rules whereby companies
are exempted from SRI standards if they have a premium listing
in the UK, this would be a matter for the Johannesburg exchange
and not for the FCA.
On the wider point, the Government agrees that enhanced
transparency and accountability are beneficial. Enhanced reporting
requirements will support this process, for example the changes
brought about by the EU Non-Financial Reporting Directive.
In addition, benchmarking exercises have been effective
in changing corporate behaviour, for example the Access to Medicine
Index, the Behind the Brands scorecard, and the annual Women on
Boards survey by Cranfield University. Each of these has been
successful in creating a 'race to the top' as companies seek to
improve their position.
On 18 December 2014 we announced our support for
the Corporate Human Rights Benchmark, an independent assessment
and ranking of the human rights performance of 500 companies across
four sectors, including extractives. This project is independent
of government and both the methodology and the ranking will be
published. We believe that this benchmark will greatly enhance
transparency and accountability in the mining sector.
RECOMMENDATION 11: THE EXTRACTIVE INDUSTRIES TRANSPARENCY
INITIATIVE
We support the decision of the UK to sign up
to the EITI but we regret that it took so many years to do so.
The Government should now make up for lost time by proactively
selling the benefits of EITI compliance and become a beacon for
best practice. (Paragraph
79)
RECOMMENDATION 12: THE EXTRACTIVE INDUSTRIES TRANSPARENCY
INITIATIVE
We welcome the fact that the UK has now signed
the EITI. However, the lengthy delay in doing so has lessened
the benefit of the initiative. The Government must now take the
role of a vocal advocate of the adoption of the Extractive Industries
Transparency Initiative to encourage other industrialised countries
to sign up. (Paragraph
86)
Response to recommendations 11 and 12
The Government is responsible for implementing EITI
and is working with the Multi-Stakeholder Group (MSG), which consists
of industry, civil society and other government departments to
implement EITI. We are committed to delivering an EITI that reflects
domestic and international objectives and I am pleased that the
MSG has decided that petroleum revenue tax will be reported at
the project level and that beneficial ownership information will
be included in our first report. The UK is also sharing lessons
with other countries that have recently joined the EITI, for example
Burma.
Government is a strong supporter of the EITI internationally.
The Department for International Development (DFID) provides core
support to the International Secretariat and the World Bank administered
multi-donor trust fund that works with current and potential candidate
countries to adopt the new EITI Standard. For example, DFID support
is enabling up to five EITI implementing countries to pilot beneficial
ownership disclosure. The Foreign and Commonwealth Office and
DFID encourage other countries to join EITI and disseminate information
about the UK's candidacy of the initiative, throughout their network
of overseas posts as an important element of measures to further
transparency and good governance internationally.
Both DFID and the FCO are working together to encourage
other countries to adopt common global standards of extractives
transparency, either by implementing the EITI or requiring their
companies to report payments to all governments. This will enable
citizens in all countries to have access to information about
how oil, gas, and mining are used and provide investors with a
more open stable operating environment.
We are delighted that since the UK and other G8 members
committed to these standards at Lough Erne, another nine countries
have joined the EITI since then. We are continuing to work bilaterally
and with other supporters of the EITI and mandatory reporting
to encourage other countries to adopt these standards to bring
information to more citizens and level the playing field for business
internationally to support global growth. At the G20 Brisbane
Summit, leaders agreed on a new Action Plan for the G20 Anti-corruption
working group, which will include measures to tackle corruption
in the extractives sector.
RECOMMENDATION 13: THE EXTRACTIVE INDUSTRIES TRANSPARENCY
INITIATIVE
Given the amount of time it took to sign up
to the EITI, we were disappointed that the Government's engagement
with stakeholders does not appear to have been comprehensive,
with stakeholders such as the Mineral Products Association asserting
that it was left out of consultation on the EITI. We recommend
that the Department undertakes a programme of detailed engagement
with businesses in the Extractive Industries so that all stakeholders
in the industry both understand and actively support the EITI.
(Paragraph 87)
Our commitment to work towards EITI compliance was
a key announcement under the UK's G8 presidency. This decision
was made by Government. To help with that decision, we took soundings
from some of the extractive companies that were advising us on
the transparency theme that ran throughout our presidency.
While the original decision to sign up was one for
government, industry and civil society play a central role in
implementing EITI. Key decisions are debated and agreed by the
multi-stakeholder group.
We asked Oil & Gas UK and the CBI to nominate
industry's representatives for the MSG.
The CBI nominated Dr Patrick Foster from the Camborne
School of Mines for the MSG. Jerry McLaughlin from the MPA has
been attending the MSGs as an observer since the first meeting.
The industry constituency recently decided to change their membership.
Of the four industry seats oil & gas representatives now fill
two slots while the other two are filled with mining and aggregates
representatives.
We are confident that the mining companies are well
represented on the MSG. However, we need to reach out further
so a communications sub group made up of MSG members meet regularly
to discuss and implement ways of increasing awareness and promotion
of EITI in the UK. The sub group first met in March 2014 and a
communications strategy was agreed and published in June 2014.
On 12 June, we held an EITI event for the mining
and aggregates sector at the Institute for Materials, Minerals
& Mining (IMMM). This was organised jointly by MSG member,
Dr Foster and the UK EITI Secretariat.
Industry MSG members produced guidance documents
which were published in July 2014 and can be found on the EITI
website. These documents are aimed at providing useful information
about EITI for industry and provide a provisional timetable for
those companies that will be caught under EITI.
We used the opportunity of the UK's successful admission
as an EITI candidate country in October 2014 to publicise our
progress. The communications sub group used and agreed a range
of communications to publicise this outcome. This included social
media, blogs, press releases, stakeholder emails, and updates
to the EITI webpages, a podcast and newsletters.
RECOMMENDATION 14: EU DIRECTIVES
We support the Government's intention to implement
the EU Directives on both accounting and transparency. These should
be implemented in a timetabled and proportionate manner to minimise
the cost to industry. We expect the Government to send us a progress
report on the timetable for adoption and any changes it intends
to make to the original Directives before any legislation is laid
before Parliament. In each case it must provide an updated Impact
Assessment on the timing of implementation. (Paragraph
98)
Response
The Government is taking swift action on this agenda.
In August this year, we published the Government response to our
consultation, including draft regulations. These regulations were
laid before parliament on 27 October and came into force on 1
December.
In addition, the Financial Conduct Authority has
completed its consultation to the requirements in the Transparency
Directive. They are currently considering the responses and we
expect an announcement soon. We expect that the FCA will point
listed companies to the UK regulations, which implement Chapter
10 to achieve compliance with the Transparency Directive in relation
to extractives reporting.
RECOMMENDATION 15: EU DIRECTIVES
The introduction of the EU Directives and EITI
will impact on the work of other government Departments, particularly
the Department for International Development (DFID). It would
further debate if DFID, or the International Development Committee,
shared with us any evidence they had received about the combined
impact of these measures on supporting development and international
tax transparency. (Paragraph
99)
Response
The UK Presidency of G8 in 2013 changed the global
context for extractives transparency. Leaders recognised that:
"Natural resources have the potential, if
developed and managed responsibly...to be a key driver of strong
and sustainable growth, especially in developing countries with
an abundance of natural resources. To illustrate, oil exports
in 2010 from a single African country exceeded total net aid to
sub-Saharan Africa. These resources offer a long term route out
of poverty for many developing countries and an opportunity to
reduce dependence on external assistance.….Raising global
standards of transparency in the extractive sector and building
the capacity of countries to manage their resources effectively
will improve accountability, reduce the space for corruption and
other illicit activities and ensure that citizens benefit fully
from the extraction of natural resources".[1]
The G8 took action at Lough Erne to raise global
standards of extractives transparency. This makes information
about extractives revenues and deals available to citizens in
more countries so they can hold governments to account for how
these resources are managed. Five G8 members are committed to
implement the Extractive Industries Transparency Initiative (EITI)
by which companies and governments publish payments and revenues
from oil, gas and mining and additional information such as licences.
EU members committed quickly to implement the Accounting and Transparency
Directives which require extractives companies to report payments
to all governments project-by-project. Canada committed to introduce
similar measures by 2015. The US had already legislated in 2010.
G8 action created international momentum by encouraging
other countries to take action. The EITI International Board has
recognised the impact of G8 leadership on international extractives
transparency—in October 2013 they noted that[2]
"The G8 Summit had generated enormous progress ... commitments
from France, Germany, Italy and the UK, together with the focus
on "tax, trade and transparency"… has significantly
boosted EITI outreach efforts … the implementation of the
EITI continues to expand rapidly, and the EITI is increasingly
recognised as a global standard."
The Secretariat has noticed an upsurge in enquiries
from additional countries considering joining EITI. 48 countries
are now implementing the EITI compared with 39 in June 2013.
But EITI alone is not sufficient to ensure that citizens
in all countries have access to information about how oil, gas
and mining are managed. Mandatory requirements for extractives
companies to report payments to all governments will provide information
even in countries, which do not want to implement EITI, such as
Angola and Equatorial Guinea—countries where huge extractives
riches coincide with poverty and inequality.
Extractives transparency can help poor countries
turn these riches into growth and reduce poverty. Many of the
world's poorest countries have a far greater abundance of valuable
natural resources than the UK. The US has estimated Afghanistan's
natural resources to be worth up to £1.8 trillion. In 2008
exports of oil and minerals from Africa were worth roughly £245bn,
around nine times the value of international aid (£27bn).
Oil, gas and mining have potential to deliver transformational
change to poor countries. At independence in 1966, Botswana was
one of the world's poorest countries. Thanks largely to well-managed
revenues from the mining of diamonds; it became an upper-middle
income country in 2007.
Information about extractives can help tackle corruption
and mismanagement. In Nigeria, EITI audits for the period 1999-2008
uncovered huge discrepancies in reported company payments and
government receipts. NEITI has already recovered $443m, sufficient
to fund 44 million insecticide-treated bed nets to prevent malaria.[3]
Information from extractives transparency can enable policy makers
to assess whether countries are getting the best deal for their
resources. In Ghana, EITI recommendations stimulated policy discussions
that led to an increase in rates of mineral royalty payments from
3 to 5% and corporation tax from 25 to 35%. EITI builds trust
and dialogue between companies, governments, and civil society
preventing conflict. In the Democratic Republic of Congo, EITI
brought stakeholders together to discuss mining management for
almost the first time.
Companies benefit from greater extractives transparency.
EITI improves the investment climate for private investors, for
example[4] by making it
more open, fair and competitive (Arcelor Mittal)[5];
revenue disclosure leading to improved governance and helping
contribute to stable, long-term investment climates, economic
growth and the sustainable development of communities (London
Mining)[6]; contributing
to company reputation as an open and fair mining operator, an
important asset when seeking new opportunities (Newmont)[7].
Other benefits[8] include
reducing information asymmetries between investors and companies,
creating greater investor confidence and promoting capital formation;
denying opportunities for corruption and enhancing political stability,
thereby creating a more stable business environment, assisting
companies to avoid pressure to enter into unethical business deals;
increasing liquidity and lowering the costs of capital in the
long run, due to greater stability and lower uncertainty in the
industry; giving greater stability to companies' asset bases,
thereby attracting capital from long-term equity investors.
In addition, EITI implementing countries are now
starting to report according to the new EITI Standard agreed in
2013. Together with mandatory reporting rules and other voluntary
disclosures this improves the quality as well as quantity of information
available to enable citizens, investors and policy makers to scrutinise
management of oil, gas and mining:
— The
new EITI Standard will require countries to disclose a wider set
of information, for example on state-owned enterprises, licences
and subnational data;
— New international rules for company reporting
in the EU—will require project-level reporting to all governments
by extractives companies. This means citizens can see how much
is paid for local mining sites, for example, not just nationally
aggregated data.
— 12 countries are piloting disclosure
of companies'/licence-holders' beneficial ownership under the
new EITI Standard—ultimately this may be a means to assist
with collating information about who benefits when deals are struck
at an undervalue and illicit proceeds siphoned away to foreign
bank accounts.
— Countries like Guinea, the DRC, Liberia,
and Afghanistan have started to disclose contracts, so citizens
and investors have access to information about the kind of deals
that governments are doing.
RECOMMENDATION 16: SUPPLYING EQUIPMENT
It is clear that suppliers to the extractive
industries value the United Kingdom as a base from which to do
business with the rest of the world. We commend the work of the
UKTI in both attracting foreign companies to base in the United
Kingdom, and also for promoting British companies abroad. It is
clear that to retain a leading position, the UK will have to remain
a centre for extractive industries' skills. (Paragraph
110)
Response
The UK recognises the importance of supply chains,
including those supplying equipment to the extractive industries,
in building strong, sustainable and balanced growth. The government
is tackling this through building supply chain capability to encourage
domestic suppliers to fill any gaps and by working with the Manufacturing
Advisory Service.
The aim is also to strengthen existing supply chains,
hence the Department's Advanced Manufacturing Supply Chain Initiative
(AMSCI) as a key mechanism for delivering these policy objectives.
We are also working to strengthen existing supply chains by encouraging
primes to adopt a collaborative and long-term approach to their
suppliers.
On 10 Nov the Deputy Prime Minister announced that
Government will develop an Action Plan for supply chains to be
published in early 2015. This will primarily focus on the issues
uniquely faced by companies within supply chains, and support
our efforts to boost the resilience of our UK supply chains.
As well as AMSCI, all sectors, including the minerals
sector, have also had access to programmes such as the Regional
Growth Fund and Employer Ownership of Skills Fund (EoF) that can
support supply chains.
RECOMMENDATION 17: SUPPLYING LABOUR
The technology involved in modern mining is
both substantial and exciting and requires specialist staff to
thrive. It is clear that the both industry and Government should
do more to highlight these aspects of extracting to boost the
sector as an attractive career. (Paragraph
114)
Response
We look forward to the strategy being developed by
the Mineral Products Association. The Oil and Gas Council has
conducted a review of the labour market across the industry and
will be publishing the report on the 9th December. The report
identifies the specific skills gaps that exist and the opportunities
from appropriately skilled staff in accessing overseas markets.
In November 2014, the UK Government announced support for a National
College for building our capability to exploit onshore unconventional
oil and gas resources.
One of the goals of the oil and gas industrial strategy
(published March 2013) is to improve workforce skills in the industry.
The strategy proposed the creation of a "one-stop-shop"
information gateway to attract people into the industry. In November
2014 OPITO (the offshore oil and gas skills body) launched the
Navigator,[9] which was
produced in association with the industry and key stakeholders.
It is the official starting point to a career in oil and gas,
providing an extensive library of helpful tools, useful links
and information to guide those looking to join the industry on
careers, companies, education, training and the dynamic industry
itself.
RECOMMENDATION 18: DEMAND FOR STEM GRADUATES
We recommend that the Government works with
educational institutions to promote and excite the next generation
of extractive workers. In particular, the Government should collaborate
with the education sector to encourage more students to study
STEM-related subjects in university. This will help not only the
extractive industries but also the other many industries that
need STEM graduates. To do this effectively the Government should
perform a STEM skills audit in order to assess:
1) The number of vacancies in the UK which
require a STEM qualification;
2) The number of students currently studying
STEM subjects;
3) The number of school leavers intending to
study STEM subjects in the next two to three academic years; and
4) What industries/sectors STEM graduates enter
after completing their studies. (Paragraph
118)
RECOMMENDATION 19: THE PERCEPTION OF THE EXTRACTIVE
INDUSTRIES
Given the difficulties in obtaining sufficient
numbers of STEM graduates, we recommend that the Government uses
its engagement with industry to actively encourage and promote
mining as a rewarding and exciting career. Concept mines, concept
machines, seabed mining and even mining asteroids for NASA are
part of the potential future for mining and students' perception
of mining needs to be updated. (Paragraph
124)
Response to Recommendations 18 and 19
The Government agrees with the Committee about the
importance of having an increasing pipeline of STEM skills to
provide a skilled workforce in the growth sectors of the future.
The extractive industries will be one of many sectors to benefit
from a growth in STEM qualifications. This view was underscored
in the conclusions of Professor Perkins in his review of engineering
skills.[10]
Government already works with those from educational
institutions and business to promote and excite the next generation
of workers with STEM skills. It does this by funding STEMNET to
run the STEM Ambassadors Programme; a UK-wide network of over
29,000 volunteers from many sectors of industry and academia.
STEM Ambassadors go into schools to inspire and enthuse young
people about STEM subjects and act as role models for the types
of career to which those subjects can lead.
Government's commitment to supporting science, technology,
engineering and maths (STEM) supports these industry led initiatives
and we encourage the mining industry to engage with Government
supported initiatives such as STEM Ambassadors and the Your Life
campaign in order to reach students at school level.
The Government is also working with business, educators
and civil society to promote the study of STEM skills through
the Your Life campaign: a three-year campaign to ensure the UK
has the maths and science skills it needs to succeed in a competitive
global economy. It will do this by inspiring young people to study
maths and physics A levels as a gateway to exciting and wide-ranging
careers; and by helping employers recruit and retain talent, particularly
women.
The Government notes the Committee's recommendation
on a STEM audit. Much of the information suggested for the audit
is already available. To take each element of the recommendation
in turn:-
1) The number of vacancies in the UK which require
a STEM qualification;
The UKCES UK Employer Skills Survey reports vacancies,
hard to fill vacancies and skills shortage vacancies for sectors,
occupations and geographies. From this is it possible to identify
the number of vacancies for STEM related occupations but not vacancies
requiring a STEM qualification. As such, occupation is used as
proxy for the qualifications, skills or experience required to
hold the role. The UK Employer Skills Survey is conducted biennially
and results from 2013 are available here.[11]
Further research by the UKCES (2013) has reported
on the Supply of and Demand for High Level STEM skills in the
UK.[12]
Estimates of vacancy ratios (the number of vacancies
divided by employment) do not suggest a higher vacancy rate for
STEM occupations. Supply and demand calculations for 2020 do not
suggest an overall shortage of STEM graduates in most areas of
the UK.
2) The number of students currently studying STEM
subjects;
This data is collected by the Higher Education Statistics
Agency. The most recent release, on 15 January 2015, indicates
that in 2013/14 there were 1,007,640 students (full-person equivalent)
studying STEM courses at UK HEIs.
This is broken down as below:
| Subject area of study
| Total |
| Medicine & dentistry | 67,360
|
| Subjects allied to medicine | 273,235
|
| Biological sciences | 207,520
|
| Veterinary science | 5,935 |
| Agriculture & related subjects | 18,360
|
| Physical sciences | 93,270 |
| Mathematical sciences | 42,225
|
| Computer science | 91,565 |
| Engineering & technology | 159,010
|
| Architecture, building & planning | 49,160
|
| STEM total | 1,007,640
|
Source: HESA
3) The number of school leavers intending to study
STEM subjects in the next two to three academic years;
Government does not collect data on the number of
school leavers intending to study STEM subjects. Higher Education
Institutions are autonomous, so decisions on what courses to offer
are a matter for them. However, now that we have lifted the controls
on how many students institutions can recruit each year there
is no reason for them not to offer additional places in STEM subjects
if that is what students wish to do.
4) What industries/sectors STEM graduates enter
after completing their studies.
This information is collected in the HESA Destinations
of Leavers from Higher Education Survey (6 months after graduation)
and Destinations of Leavers from Higher Education Longitudinal
Survey (40 months after graduation). A breakdown of the industries
employing graduates by STEM subject 40 months after graduation
is published in Tables 7A and 7B in the Destinations of Leavers
from Higher Education Longitudinal Survey.[13]
Source: Destination of Leavers from HE
The Government believes that it has the evidence
it needs but will keep the need for further research under review.
The Government believes that it is already meeting the spirit
of the Committee's recommendation in paragraph 118 and does not
need to undertake a new initiative in this area.
RECOMMENDATION 20: THE ROLE OF THE GOVERNMENT AND
INDUSTRY
We recommend that the Government encourages
large mining companies to support the UK as a base for mining
through funding and resources, including active engagement from
school level onwards. This should include the provision of scholarship
opportunities and supporting lecturing staff so that they are
putting support into institutions where they list, as well as
in countries where they operate. (Paragraph
127)
Response
We thank the committee for this recommendation. The
Government encourages all businesses to engage in activities to
educate young people about and to inspire them to pursue careers
in their industry. Many businesses are doing so as it is in their
own interests to create a pipeline of skilled employees. The mining
industry is responding in supporting the creation of the UK as
a centre for mining. For example, a recent collaboration between
the Institute of Quarrying and Derby University is developing
an online certificate in International Quarry Operations.
We would encourage the mining sector to consider
these issues as part of the strategy being developed by the Minerals
Products Association and look forward to discussing this with
them.
We would reiterate our commitment to support for
STEM and our encouragement for the mining industry to engage with
government initiatives.
We believe that business is best placed to identify
skills gaps and target resources to develop, in conjunction UK
schools, colleges and universities, suitable syllabuses, including
scholarship programmes to ensure the UK remains a centre for mining
excellence.
1 G8 Lough Erne communique June 2013 Back
2
http://eiti.org/about/boardmeetings. Minutes and papers for the
EITI Board meeting, October 2013 Back
3
http://www.one.org/africa/blog/making-transparency-work-for-development-in-nigeria/ Back
4
Statements of Support provided by EITI Secretariat Back
5
Available at: https://eiti.org/supporters/companies/arcelormittal Back
6
Available at : https://eiti.org/supporters/companies/london-mining Back
7
EITI Impact in Africa 2010 Back
8
Investor and other submissions to SEC. PWYP March 2014 Back
9
Available at http://www.oilandgasskillsnavigator.co.uk/ Back
10
Professor John Perkins' review of engineering skills Back
11
Available at: https://www.gov.uk/government/publications/ukces-employer-skills-survey-2013 Back
12
Available at: https://www.gov.uk/government/publications/high-level-stem-skills-supply-and-demand Back
13
Available at: https://www.hesa.ac.uk/publications-andproducts?task=show_year&pubid=1714&versionld=54&yearld=292 Back
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