Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 200-219)

MONDAY 19 MAY 2003


Lord Howie of Troon

  200. We touched on this question earlier when we were talking about objectives but, even so, in redesigning your policy framework how has this new structure been co-ordinated with DfES, the Treasury and the Inland Revenue? While we are at it, let me just ask as a rider: I thought I heard your budget for evaluation was about a million or a million and a half, is that anything like enough to evaluate this enormous number of things you are trying to do?
  (Mr Rees) There is also a research dimension that goes with that. I think we find we can make significant inroads with that budget but we also need to see it in the context of the research that is undertaken as well.
  (Mr Lambert) There are what economists happily call "economies of scale" in doing that sort of work. While if you look over a five year period you may have spent several hundred million pounds on the programme, if you spend a quarter of a million pounds on an evaluation study you get a very, very substantial volume of work for that but looking at a very large amount of money. You can get quite good returns for your investment in evaluation.

  201. How about the co-ordination between these various bodies that I mentioned?
  (Mr Rees) For example, Patricia Hewitt and Charles Clarke have said that they are very keen to have a close relationship between the departments and officials on skills issues and there is quite a lot that is happening in that area. For example, the Permanent Secretaries of the two departments did some joint presentations last month. I mentioned that the Treasury sit on the Investment Committee that has been set up to oversee business support, so there are quite close links there. I gather there has also been a Whitehall group that has been set up following a cross-cutting review of small business activities that has been set up to co-ordinate work in this area across the piece. There is quite a lot of activity and co-ordination between departments.
  (Mr Lambert) There was a cross-cutting review of the science policy that led to a joint Government paper on investing in innovation which was led by the Treasury with representatives from different departments.

  202. In the course of this co-ordination and revision of your policies, whose idea was it to rationalise your schemes from over 150 to fewer than 20? Was that your idea or somebody else's?
  (Mr Rees) I think it dates back to the review of business support that took place about 18 months ago where the Department went out and consulted business and various stakeholders and a really strong theme that emerged from that was that the Department had too many schemes and it was difficult for business to see their way through the landscape. I think the Department has taken on board that message that came through to simplify, much of it from the business community but also from other stakeholders as well.

  203. The feeling was that you were overstretched?
  (Mr Rees) I think the feeling was there were too many small things taking place. There were a lot of small schemes that were tailor-made to individual situations and I think the feeling was that maybe it would be better to simplify the system and have fewer bigger things, fewer bigger hits if you like, which would make it easier for the business to see their way through the system and also easier for officials as well.

  204. Would it be fair to say that your 150 schemes caused confusion?
  (Mr Rees) Yes, I think some parts of the business community were confused by that.


  205. The Treasury is particularly interested in, and has been charged with, raising productivity. A lot of this came out of the government's desire, and at EU level too, but how are you going to decide whether a scheme affects productivity? Secondly, even with 20 schemes and various other schemes and major Treasury concessions on taxation of different kinds, how do you decide which schemes should have more money and which schemes less money? Where and how are these decisions taken on a careful evaluation and rational basis?
  (Mr Rees) I think there are probably two issues there. One is to look at the evaluation itself of the schemes and to draw some generic lessons from that. The other issue is that the Department also takes a strategic view of where to put resources. It published a business plan recently that set out some priority areas. I think it is a combination of the evaluation evidence coming through and the strategic higher level decisions that are taken on the most effective areas to put its resources. In terms of your first question on how do you assess that for individual programmes, one of our overarching PSA targets is about the productivity gap and national productivity figures, so one can look at those national figures but, of course, it will take a long time for what the Department does to feed through into the overarching figures. We have that higher level target and then, if you like, at the lower level we have the evaluation of individual programmes where we would look at the impact through asking firms, for example, the impact on their sales and turnover and look at the productivity impact on those firms that are directly assisted and try to have a look as well at the spillover effects which are very important, the impact on suppliers, on companies and so forth.

  206. The data on sales and so on, as you say, does not tell you about productivity. It might tell you something about growth but it does not tell you anything about productivity. I am trying to get at how you are measuring the effect of a scheme on productivity.
  (Mr Rees) Ideally one would look at the impact on value added in relation to the workforce of the company. In practice it is quite difficult to get it evaluated, so what we tend to look at are the impacts on sales of the company in relation to the workforce. Where we can get value added figures that is obviously a better way to do things.

  207. So people who are managing the programmes are in an imperative, are they, to ensure that any schemes they approve are helping improve productivity rather than judging them by where they have spent the money?
  (Mr Rees) We have a new monitoring system that has been set up.
  (Mr Hallett) One of the important lessons from the past is that aside from not having very clear objectives for the purposes of intervention, people were not collecting the right information consistently. So as well as the business case, which Andrew has mentioned, which forms the proposal that goes to the Investment Committee so they are in a position to recommend or not the specific proposal for subsequent funding, and to make that recommendation to the Secretary of State, there are two other pieces of analysis, pieces of work, that need to go in in combination with the business case. One is a balanced scorecard, which is the approach which has been settled on to define in a consistent way the performance measures but also the other perspectives, the relationships with stakeholders, the way we manage the process internally, internal costs and that sort of thing, so there is a rounded set of information that we are collecting. Where it is appropriate we do ask people to collect data which bears on the productivity judgments. To pick up on some of the comments that were made earlier, there is also an outline evaluation plan which is sent to the committee at the same time so that they have a clear view of where the evaluation evidence is going to be carried out in the light of the programme and they also are satisfied that the monitoring data which is going to be collected is adequate for their purpose because they are applying their judgment and they want to make sure that the subsequent information gathering stages are properly defined at the outset.

Lord Chadlington

  208. This is a new scheme, is it?
  (Mr Hallett) Any new proposal to spend money in the area of business support will come through the Investment Committee. In future there will be no business support outside that system.

  209. I am sorry, I misunderstood. I thought you were meaning that the evaluation system was a new evaluation system?
  (Mr Hallett) No. What I am suggesting is that what is new about the system is to define at the point of approving expenditure the monitoring and evaluation systems that are going to be specific to that.

  210. I missed that point. The question that I think was being asked by the Chairman in part was how do you evaluate the actual outputs of productivity? Not just what is the relationship like and all the other things, the balanced scorecard, which is certainly true and very, very important, but how do you get at the productivity results so that you know whether you should turn up the volume of money or reduce the volume of money? I am putting it very simply but that is the thing which I sit here and am unclear about.
  (Mr Hallett) The intention is where we believe that the information is available, and I think this is probably most true where we are talking about policies which are quite close to market or policies which would be in the area of commercial best practice, for example, it will be quite clear to think about the productivity effects within the companies that are beneficiaries and we can match that performance against companies that may not have benefited from the support so that we can start to tease out from amongst the many, many factors which affect company performance, the role of the business support activity. There is another group of interventions, particularly in the technology area, where probably we will be much further away from market and there it is important to be very clear about what the intermediate objectives are. They may be about levels of research and development, about indicators of innovative activity, with a background of well understood theorising about the relationship between those productivity drivers in the innovation sector and final productivity. I trespass somewhat on Mr Lambert's expertise in this area.

  211. I think it would be helpful if there was some way in which this particular point could be explored a little more at some time in written evidence that you could provide about the relationship between "productivity investment" and looking at the productivity outputs and the way in which those two things are related and what information you could give us about the way it is monitored. That would be very helpful to us.
  (Mr Hallett) We would be very happy to do that.

Lord Howie of Troon

  212. Insofar as the extent of sales, prices and so on are part of your evaluation, how do you cope with a situation such as Dyson, the man who invented the fancy vacuum cleaner, which is quite expensive? He is shifting his factory from the West of England to some former colony, I cannot remember where it is, somewhere far, far distant, and the effect of this in his mind is to increase his profits and increase the value of the sales. He is not going to reduce his price, I do not think. Does that mean increased productivity because there is no doubt that he has got an awful lot of added value?
  (Mr Lambert) It presumably raises the productivity of his whole business because his judgment is clearly there are lower input costs in another location that enables him to keep the business going whereas at current high levels he might not do so if he tries to do all of his manufacturing in the UK given the relative prices. What the effect on the productivity in the UK economy as a whole will be is quite difficult to measure.

  213. It might be indeed. That is really my point.
  (Mr Lambert) If the business survives and carries on with higher value added activities, for example, on the research side in the UK, the countervailing effects of his decision—

  Lord Howie of Troon: That is a good word, "countervailing". I am sure you use it quite a lot.

Lord Fearn

  214. What is the rationale for the policy to support science parks? It is proved that the ones off science parks are much better than the ones on and being on a science park has not impact at all.
  (Mr Lambert) I think it is worth saying, certainly as far my knowledge goes, there is no direct central government funding for science parks. They are essentially initiatives by universities, in some cases with the co-operation of the local authority, to make some of their land available for this particular use and in some cases to put up the buildings and give fairly low costs of accommodation to small businesses in their early stages, so we are not spending a lot of public money in science parks, they are not part of DTI policy to fund them. I think the DTI and the Office of Science and Technology provide a little bit of help to the Science Park Association, the trade association, to do publicity and things like that, very modest amounts of funding. We are generally in favour of this as a good idea but we do not give it a lot of money. I think the comparison of survival rates between on and off science park companies is probably being made between high technology companies of different sorts but once they have been on the science park these small firms are subject to the same market forces as any other and the risk to small business is quite high. It does not necessarily give them a better survival rate than other high technology companies. I think we tend to find that high technology and innovative companies have a higher survival rate than average companies, so in that sense the science park is providing another launching pad for that part of the economy which contributes knowledge and other things to the rest.

  215. Your advice would be do not go on a science park, would it?
  (Mr Lambert) It is a purely voluntary activity and it suits some firms when they come out of university, but not by and large. Possibly reverting back to your previous question about "intrapreneurship", which I guess is something in the area of spin-outs, which I know Lord Sainsbury is very enthusiastic about, from the name "science park" one might think it is a lot to do with coming out of universities but, in fact, it is not, it is much more of a real estate operation.


  216. The DTI is effectively the sponsoring department for Regional Development Agencies, is it not?
  (Mr Lambert) It is now.

  217. I understood a number of RDAs to be very keen on science parks and on clusters, links between university and industry, and the DfES is very keen on the important role of major research universities. Are you saying this is all a lot of guff, that it has no value at all?
  (Mr Lambert) No, the science park is quite a specific activity.

  218. Are the RDAs not encouraged by yourselves in their regional strategies and are not most of the regional strategies talking about clusters and links with universities physically, with high technology parks at universities, and you sponsor them, do you not?
  (Mr Lambert) This is starting to trespass outside my area of expertise and competence. In a sense you have RDAs because they are developing regional strategies to fit their regions, so while the DTI approves the strategies, it does not drive them and dictate what the RDAs should do. Some of the particular forms of knowledge sharing, like clusters or incubators, science parks and other things, in practice when you get down to it are rather different. A cluster is where firms tend to be able to exchange information rather well because they are geographically close. It does not necessarily mean that they are close to a university.

  219. So close, but not too close. The issue it raises, of course, is if the RDAs are getting more and more of the spend in the area of industrial promotion and productivity drive and so on, and as I understand it more and more is going into that single budget, you have told us about you setting objectives and you doing assessments, you are the sponsoring department for most of the regional RDAs, do you set objectives and the framework for evaluation for them? Who is actually making sure that this increasing amount of money going to the RDAs is subject to the same rigour that you have told us directly supported schemes are subject to?
  (Mr Rees) The RDAs have a set of objectives a little bit like our PSA targets but on a regional level, so they will have objectives to improve productivity and other things in that area that are agreed centrally. Then they have some freedom within the resource that is allocated to them to achieve those objectives.

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