Business, Energy and Industrial Strategy
Oral evidence: Work of the Department, HC 566
Tuesday 18 October 2016
Ordered by the House of Commons to be published on 18 October 2016.
Watch the meeting
Members present: Mr Iain Wright (Chair); Richard Fuller; Amanda Milling; Peter Kyle; Kelly Tolhurst; Michelle Thomson
Questions 1—79
Witnesses
I: Alex Chisholm, Permanent Secretary, Department for Business, Energy and Industrial Strategy; Angie Ridgwell, Director General for Finance and Corporate Services, Department for Business, Energy and Industrial Strategy; and Doug Watkins, Director, Human Resources, Department for Business, Energy and Industrial Strategy
Witnesses: Alex Chisholm, Angie Ridgwell and Doug Watkins
Q1 Chair: Mr Chisholm, good morning and welcome to the Business, Energy and Industrial Strategy Committee. It is good to see you here. For the purposes of the record, would you mind introducing yourself and perhaps introducing your colleagues as well?
Alex Chisholm: I am pleased to do so. Good morning, Chairman and members of the Committee. Alex Chisholm is my name, the new Permanent Secretary at the Department for Business, Energy and Industrial Strategy. On my right I have Angie Ridgwell, who is our director‑general for corporate services. On my left is Doug Watkins, who is our director for human resources.
Q2 Chair: Is the Department that you are running, Mr Chisholm, one Department yet?
Alex Chisholm: It is one Department, yes. It was formed, as you are aware, from a merger of two Departments: the Department of Energy and Climate Change and the Department for Business, Innovation and Skills. Some parts of the Department for Business, Innovation and Skills were taken away from it and transferred to the Department for International Trade and the Department for Education. However, substantially, BIS and DECC have been merged to form a single Department and we did that in July.
Q3 Chair: Is it running as a Department? You have got a transitionary team in place and a transition director, but is it running as one Department rather than two Departments that need to have a process of putting them together?
Alex Chisholm: Yes, it is. That was an immediate priority for us in July and August. We worked very hard to make sure that we had, first, proper support for the ministerial team, and they have divided up their portfolios quite evenly so they are cross‑cutting across the business and energy areas; to make sure they have proper support from the private offices group, from the communications department, including the press office; and to make sure that the way in which we interact with Parliament is also as a single Department. Therefore, of course, as you would expect, for something of this scale, there is going to be a lot of further work to do over the months ahead but we are already combined as one Department.
Q4 Chair: What else needs to be done? It seems quite a bold statement: three or four months in, transition is more or less complete; you are running as one Department, but then you also said more needs to be done. Where are you now? What work has been achieved, but what needs to be done and what is the timetable for that?
Alex Chisholm: We have divided it into three phases. The first of those is what we call “mobilisation”, which was to create that single Department at the top and to the outside world at the beginning, in the first few weeks. That is complete. Then from September to the end of March we are running what we call the “transition” phase. That is the process that Angie and one other director‑general, Jaee Samant, are the co‑heads for.
That involves a number of work streams, as you would expect, to bring all staff together in a single building, which we plan to do in the central London estate; to make sure people are all working on a common IT system; to make sure there is a single state of HR policies; to make sure, in all the detail of the organisation, we are confident that we have the workforce working in the right areas to reflect the new priorities for the Department; and to make sure we are confident with the way in which we are interacting with our external stakeholders up and down the country. There is obviously a great deal to that wider transition task. We aim to have that complete by the end of this financial year, so roughly a six‑month process.
I have merged bodies before, both in the private and the public sector. Six months would be going some; that would be rapid. That would be good going, but we are very keen to make sure we can achieve this efficiently, at a low cost to the taxpayer, and to make sure that does not affect our ability to function externally fully effectively.
At the end of that process, we recognise there will be some ongoing work, because some contracts we have with the outside world, for IT contractors and things, operate over a longer time period and we cannot interrupt those in the first few months; but also because we recognise, to get the full benefits of the merger, there will be an ongoing transformation task. That final phase will be initiated in April next year. That is our plan for the overall transition.
Q5 Chair: You mentioned new priorities of the Department. What are those? Have the Prime Minister and the new Secretary of State tasked you with carrying out specific things?
Alex Chisholm: You will have seen, as laid before Parliament in the initial machinery of government changes, the broad coverage for the Department and some broad aims. It is fair to say that the Secretary of State and the ministerial team at the Department are still working up the detail of those priorities.
I can perhaps give a general indication of some of the areas that we are looking to cover. The first of those is that we want to have an ambitious industrial strategy. It is in the name. It is clearly something we see as very important at this point in time, with the particular circumstances we face economically. We have begun to develop that and engage with wider stakeholders over it. You may have seen the speech given by the Business Secretary to the Institute of Directors a couple of weeks ago; and, actually, I do not know if it has arrived yet, but he wrote to this Committee yesterday. That is one important area.
Another important area for us is to make sure that we are able to maximise the investment opportunities and bolster UK economic interest, particularly as we prepare to leave the European Union. Clearly understanding the impact of leaving the European Union for the business community, but also for consumers here in the UK, is something that you would expect this Department to take very seriously. That has particular implications for the way in which we operate in the energy sector, so that too is a big area of work.
We have also announced that there will be ongoing work in relation to corporate governance, another area I think this Committee is interested in inquiring into. We look forward to hearing what you come up with there. There is also the review chaired by Matthew Taylor of modern labour practices, and we must continue to make sure, as ever, that we keep the lights on, that the UK has a reliable, low‑cost and clean energy system. Those would be some of the early priorities for the Department, quite a bit of which you will recognise as new work, so that is something where we need to make sure that, with the same or most probably reduced resources, we are still able to deliver against all those priorities.
Q6 Chair: You talk about reduced resources. With two Departments of State coming together, there will be some duplication of processes, IT systems but also of personnel. Have you identified, at this stage, possible duplication of responsibilities and how are you rationalising those?
Alex Chisholm: You are absolutely right; there is likely to be some duplication, particularly in the corporate services area. We have not at this point completed our plans for how best to address that, but clearly there is going to be some duplication and that is something on which we will be engaging closely with staff, Ministers and the Department over the weeks ahead.
Q7 Chair: Do you anticipate that, as a result of that identification work carried out, there will be job losses?
Alex Chisholm: I would not like to speculate at this point in time. Obviously we are still going through the machinery of government processes. Quite a number of staff have transferred, some 400 or 500 to the Department for Education and around 170 to the Department for International Trade. We also, in ordinary time, continue to lose people at one end and sometimes recruit people at the other end, so we are not yet really in a position to be able to make any general statement about the future implications for staff.
Q8 Chair: Where will the Department be? You talked about a co‑location in a central London location. Does that mean that all of the Department’s work will be carried out in a single site? What impact does that have upon work carried out in the nations and regions of the United Kingdom? BIS 2020, for example, was a major piece of work that the previous Department was looking at, involving the closure of the Sheffield office. Is that still going ahead?
Alex Chisholm: First of all, in terms of the number of offices we are in at the moment, the essential Department is spread across 21 offices, of which two are in London and 19 are across the rest of the UK. If you look at the wider BEIS family, all the partner organisations—that is around about 35,000 public servants, including all the science research councils, Innovate UK, Companies House, the Met Office, Ordnance Survey and other agencies like that—and about 90% of the total people we pay for are currently outside of London and we have about 100 offices.
That is obviously a very substantial estate, so we are in a discussion with the Government Property Unit about how best to manage that. Clearly, there are operating costs associated with that. The commitment we would want to make is to have an efficient and agile Department that provides good service to the public and to Ministers. We will need to make sure that we make our plans, taking account of that.
Q9 Chair: I think it is me, Mr Chisholm. Forgive me for this, but I am still not clear as to what the intention of the Department is. Is it the policy of BEIS to make sure that all policy work and the Department’s activities are co‑located on a single site as much as possible in London? Will you still be closing Sheffield and other places? Will BIS 2020 still be going ahead?
Alex Chisholm: We have an ongoing review to determine the best way to represent ourselves right across the country.
Q10 Chair: On that point, could you share that with the Committee, perhaps even on a confidential basis, in terms of timetable, in terms of how you are going to move to that?
Alex Chisholm: Yes. First of all, within London, DECC staff were operating in Whitehall Place, at one end of Whitehall, and BIS staff were operating in 1 Victoria Street, at the other end, if you like. Whitehall Place is not a very large building. There is no possibility of housing the circa 3,000 staff we have within there. There is that possibility with 1 Victoria Street, especially if a number of staff move out, as part of the machinery of government changes, to the Department for Education, the Department for International Trade and so on.
In a nutshell, the plan within central London would be to have all the officials operating in one rather than two offices. That would actually bring about some useful economies for us and assist in creating a single culture within that central Department.
We have not—and I will go on to answer the other part of your question—finalised our plans in relation to the whole of the rest of the UK. I can tell you, in relation to Sheffield, which you particularly asked about, that this Committee was given evidence first in February by one of my predecessors, a BIS Permanent Secretary. BIS as a Department, like DECC as a Department, put in place plans for how it should manage its staff within the financial envelope provided by spending round 15, and as part of that it embarked on a rationalisation of its estate, particularly in relation to Sheffield. That evidence was given in February. There were then two parliamentary Public Accounts Committee hearings in March. Those plans were then finalised in May and they have been implemented, to a very large extent. That is the situation that we inherit.
We have decided to look afresh at what we want to achieve in terms of our connectivity with the whole of the UK. We need to determine what our overall financial envelope is, which has not yet been resolved with central Departments as part of the machinery of government. We will know more after the autumn statement and more again after the supplementary estimates, which are finalised in February. Once we have a final figure for the overall financial envelope we have to operate, then we will be able to finalise our workforce planning, including how we are represented in the UK.
I can say that we expect to continue having a large proportion of our overall staff outside of London and to make sure that we are well represented right across the UK, including having a big office in Aberdeen, which is very important for the oil and gas industry, and 15 or so other offices around the rest of the UK. This is very important to us, both to make sure that the Department is able to communicate what it is trying to do, but also to gather local intelligence and have that local connectivity. Our Secretary of State, Greg Clark, has been very clear about the importance that he attaches to working closely with local communities across the United Kingdom.
Q11 Chair: You said you do not know what your financial envelope is. My understanding was that there would be no changes to budgets for the Departments, so what was essentially given to DECC and BIS in the previous comprehensive spending review would be similar, and the same level of savings would need to be made. Is that not the case now? Is it the case that that is subject to negotiation and something could be finalised in the autumn statement?
Alex Chisholm: It is subject to negotiation, first of all, around the machinery of government changes, so what portion of our resources, human and financial, transfer to the Department for Education—because higher education and skills, a large part of what was BIS, is going to the Department for Education—but also to the Department for International Trade. That is one part of it.
The other part, as you rightly say, is in relation to the autumn statement, because that is the time of year when, in particular, new capital programmes are sometimes initiated; others are sometimes reduced. We do not make any assumption at this stage. Obviously, the Chancellor and the Treasury will have to take a view of the nation’s overall finances, based on the inputs of the Office for Budget Responsibility, and try to make an apportionment that reflects every individual Department.
As a Department, we spend a lot of capital. The inherited amount of that is in excess of £10 billion. That is supporting the science base in the UK particularly, as well as the enormous amount of work done by the Nuclear Decommissioning Authority, by the British Business Bank and by the Green Investment Bank. We are particularly sensitive to the outcomes of those decisions about how much capital one should have. However, we do not yet know what final amount will be allocated for resources—delegated expenditure limits on resources—for administration or for annually managed expenditure. All those figures will be finalised as part of the supplementary estimates.
Chair: The spending profile is very important, and resource and capital allocations are key in terms of what the Department wants to talk about. I think Richard wants to question you as regards that spending profile.
Q12 Richard Fuller: I do not know if it is best for Ms Ridgwell to answer this herself. Just for my assistance, in the numbers we have, we have numbers that are called “resource” and then numbers that are called “capital”. Is resource what, in the private sector, would be called expenditure or costs, and is capital essentially capital expenditure?
Angie Ridgwell: That is correct. Resource is effectively revenue or operational expenditure, whereas capital is investment in assets.
Q13 Richard Fuller: So one of the big changes in terms of looking at the books for the new Department is that the Department used to be very heavy on expenditures and relatively light on capital expenditure decisions; and now it is completely reversed. Is that right and what are the implications for you?
Angie Ridgwell: That is right. We have seen a reclassification of some of the research and development and science expenditure from resource to capital, and that reflects the benefit that it gives to the UK over the longer term, so we think that is right.
The impact on the organisation—because, ultimately, the UK can only afford what it can afford—is that we have to compete against other Departments for capital expenditure, to make sure that we can deliver our objectives. We make sure that we do those appraisals as a proper gateway appraisal, so that we can demonstrate the value for money and the return for investors.
Q14 Richard Fuller: Can I just probe a little deeper on that? On the numbers we have, the overall change is with stuff going to Education, stuff coming in and some other changes, but the Department loses about £8.6 billion of expenditure and gains £2.1 billion of capital. Most of the expenditure loss is further and higher education; and most of the incoming capital is nuclear decommissioning and others. From the point of view of putting your budget together, is it an entirely different process on capital and what are the new challenges that you have on capital that the Department did not have before?
Angie Ridgwell: For us, it is not an entirely new process. We treat all of our budgets in a rigorous, robust way, to make sure that we are meeting “Managing Public Money” requirements and are challenging all bids for expenditure to demonstrate that they deliver a good return for UK plc. In terms of the capital process, it is slightly more “gateway”, so we have a probably more intensive challenge with a lot more analysis and evidence to support the ultimate bids that go to Treasury and for discussion with—
Q15 Richard Fuller: But they will review, won’t they, what they see as the long‑term objective? You cannot not pay students next year, but you can say, “We are not going to invest in that plant.” Is it a later date at which you get certainty around the capital decisions? Is it more periodic through the year, when a proposal goes forward, that it gets accepted or not?
Angie Ridgwell: Yes. Capital often comes later in the process, as you know, because that is fairly “chunky” money; it can be managed more discretely in terms of moving the phasing of projects, and therefore we can be more flexible in the approach when we have those conversations with Treasury to meet some of the more macroeconomic challenges that face us.
Q16 Richard Fuller: In the nomenclature, “annually managed expenditure” is a separate debating point between the Departments and the Treasury, and you will be fighting more aggressively in that than perhaps in the past—“assertively”, I should say.
Angie Ridgwell: Assertively. We will be putting our case forward to demonstrate the value of the investment that we are asking for.
Q17 Richard Fuller: Can I just talk about hitting the budgets? Obviously the Department has expenditure reductions. It needs to do its bit to try to get the country back living within its means, notwithstanding any potential changes in November.
If you look at the expenditures of the Department, the National Audit Office—the NAO—has split those out between those that are staying with the Department and those that are moving on. The bits that are staying with the Department are the ones that have not been doing a good job; they have actually been going up in expenditure, according to the NAO. Is that right? What are you going to do to reverse that and hit your targets, or are you going to give up on the targets?
Angie Ridgwell: We are not giving up on our targets. We robustly manage and monitor our budget, and we manage the Department’s budget as a Department, so no elements are ring-fenced. Well, there are some ring-fenced elements, but generally speaking we look to manage and move budgets to where the priorities are.
Q18 Richard Fuller: But most of those that you have managed have now gone off to someone else. Are they going to get all the credit for your hard work? The bits that are left with you are bits that you have not really tackled yet, so should we be expecting from the new Secretary of State a very robust plan on those departments that have been going up but will now go down?
Angie Ridgwell: Well, the negotiations on the final transfers of the budgets have not been completed and part of those conversations will be managing the flexibilities and the overarching risk appetite of the Department. We need to finalise those in our conversations with other MOG Departments and HMT, which will happen as part of the supplementary estimates.
Q19 Richard Fuller: Specifically, in some of that, there have been ring‑fenced budgets.
Angie Ridgwell: Yes.
Q20 Richard Fuller: For example the innovation budget is about £500 million. Will that continue to be ring‑fenced?
Angie Ridgwell: To the best of my knowledge it will continue to be ring‑fenced.
Richard Fuller: Thank you. Could I just move on to another area?
Q21 Chair: Before you do, Mr Fuller, can I just ask: in respect of a new Department coming together and in terms of making sure that they are providing value for money for the taxpayer and that resources are spent efficiently and effectively, are you looking again, Mr Chisholm, at what improvements you can make to financial management, or do you think you are satisfied that you are doing the best that you possibly can?
Alex Chisholm: No, we will absolutely continue to make improvements to financial management.
Q22 Chair: What does that look like? What would those improvements tangibly mean?
Alex Chisholm: Just to give you an example, you may have seen the NAO report out today in relation to levy control frameworks, which is a scheme for trying to make sure that there is control on the overall amount of expenditure on low carbon generation. It is quite an unusual UK scheme. Other countries only budget one year ahead; this budgets a number of years ahead so it provides very useful confidence and visibility, and a method of control as well, for ourselves, for Treasury and for Parliament.
In the running of that scheme, my predecessor Department, DECC, found that in some of the initial work it was difficult to predict how much would be spent in those areas. There were quite a number of demand‑led schemes, as some of the initial estimates proved awry after running for three or four years. There was quite a big internal exercise conducted then to make sure that we were learning the lessons, and in particular that we moved more of the expenditure over to so‑called contracts for difference, which had a much more predictable pattern. Also, the allocation of these schemes was done through a competitive auction process, which saved hundreds of millions of pounds to taxpayers.
We are now back on track, in the levy control framework, within the limits allowed by that. That is a historic example indicating how, in the running of schemes, the Department is prepared to make “mid‑air repairs”, so to speak. We now have the NAO report that will give us further evidence and useful advice on how to further strengthen those schemes. It is tremendously important that we take the evidence from the NAO on things like the levy control frameworks and the green deal, and that we learn the relevant lessons. I am very committed to making sure that we spend public money very wisely, both in relation to capital, as the member pointed out, and in relation to our resources.
Q23 Michelle Thomson: I have a couple of wee things on the levy control framework in terms of capex versus resource or opex. Personally, I agree with what the Chair is suggesting about all of the restructuring providing an opportunity for consolidation one way or another, but is the shunt in that really an excuse to, perhaps, obscure some spending by putting it under capex, where I suspect that the management information that comes out will be much more opaque in terms of the timescales? Is that a reasonable challenge or worry?
Alex Chisholm: First of all, the move of expenditure in the science area into the capital account rather than resources makes a lot of sense because, if you look at the impact of public R and D investment, it seems to secure on average about £1.60 in private sector R and D for every £1 we spend. Furthermore, in the overall economic performance of the nation, investment in R and D has a very positive relationship with our competitiveness and productivity, the value of jobs and things like that. It seems to fit much better within the capital account rather that the resource one.
As Angie was emphasising, being in the capital account does not mean that it is a “do what you like” account; it is actually subject to very careful gateway controls. We have established a project and investment committee, which pores over these details. There is also, for large projects, external challenge from the Major Projects Authority and the Treasury. There is a great deal of control, actually, over the way in which we spend capital expenditure, plus our own commitment to making sure, as I said before, that we learn the lessons of the past and we spend the money wisely.
Q24 Michelle Thomson: In terms of the measurement of these, looking at the MI around them, it is always a challenge to make sure that you are comparing apples with apples. How do you propose to tackle this?
Alex Chisholm: Again, that was a valuable lesson from levy control frameworks, where they had to move to a quarterly updating of that, not just of the information coming in about expenditure but crucially of the forecast and of the assumptions beneath that. There is a whole series of cogs driving the results that you observe, obviously, and it was that process that actually identified what was going wrong with the forecast, so they were able to make those repairs. Close scrutiny in that case on a quarterly basis was very important to apply.
Q25 Chair: Before Mr Fuller goes on to another topic, I just want to push down on budgets and spending targets. The two different Departments had resource target savings. BIS had 17% and DECC had 16% up to 2019/2020. What is BEIS’s spending reduction target?
Alex Chisholm: That, again, needs to be finalised as part of these negotiations.
Q26 Chair: If that has not been decided yet, are you presumably working on the assumption that the two different Departments and those funding streams have the same targets as before?
Alex Chisholm: We are trying to make sure that we absorb the cost of the integration as part of this year’s expenditure, so that is already a significant efficiency gain because typically, as you may know from NAO reports, mergers between Departments can be very expensive and run into the millions. That would already be a gain.
Q27 Chair: How much is integrating BIS and DECC into one Department costing?
Alex Chisholm: We do not have a figure for that yet.
Q28 Chair: Do you have a budget for it?
Alex Chisholm: We have just established a budget as of this month.
Q29 Chair: Four months in, you have a budget for bringing the two Departments together into one Department.
Alex Chisholm: We have kept an account and the amount that has been spent has been very low to date.
Chair: Glad to hear it.
Alex Chisholm: We will have a budget, which overall tracks month by month the amount that we spend on this integration, certainly in terms of out‑of‑pocket costs but also, if staff are deviated from working on subject A to subject B, that is something we want to keep track of as well because there will be hidden costs of integration.
Q30 Chair: So what is the budget for the transition to the new Department?
Alex Chisholm: We have not finalised the final figure for this period.
Angie Ridgwell: No. We are just working through some of the longer‑term implications around things like estates and IT. We are still waiting for some information from the Central Property Unit and from our contracts, which we need to merge to actually finalise that budget.
Q31 Chair: So, 2019/2020 is not a long way to go and, given these two Departments had quite stretching spending target allocations, presumably any pause is going to be cause for concern as to whether those targets will be hit. To take DECC as an example, my understanding is that DECC would be producing savings through pooled budgets, shared centres. Is that still going ahead? Are you still going down that route while trying to bring the Departments together?
Alex Chisholm: There are two things there. First of all, both Departments initiated reductions in their overall staffing levels through voluntary exit schemes and quite substantial schemes were run—in some cases are still running—to complete the final phases of that. Those steps have already been taken to reduce the operating cost of the Departments.
You are absolutely right, Chairman, that another aspect of this was bringing together shared services in a number of areas. The ideal pattern for doing that has now changed, because previously DECC was combined with some other Departments. I think it was Defra—
Angie Ridgwell: Defra and DWP.
Alex Chisholm: BIS was big enough to have its own outsourcing unit, SBS, so we now need to merge the two outsourcing streams of work. That will definitely be a different outcome to what would have been the case had they been separate. I would be reasonably confident that the effect of this will end up being that we have a lower cost overall for operating across the single Department than we would have had over the three Departments, but clearly there is going to be an adjustment.
Q32 Chair: Mr Chisholm, with the greatest respect, you are not giving me a lot of confidence, because it seems to me that, like it or not, people have different ideas about whether the funding envelope needs to be larger or smaller, but there was a target. BIS had to have resource savings in real terms of 17% and DECC had an equivalent of 16%, but you cannot give us any equivalent figure at all. What are you working to in terms of reductions in your budgets?
Alex Chisholm: We assume that we will have to make comparable reductions. DECC, in particular, took action straight after spending round 15 to bring its cost level down and we have not increased that since, so we already have the benefit of that. In the case of BIS, its plan was a more gradual one and required a more complex adjustment of costs across the overall BIS estate with the partner organisations. That is the aspect that is particularly important for us to pay attention to now, which is why I do not want to rush into making a plan there.
We have 48 arm’s length bodies that we are dealing with. They are a very heterogeneous group. The biggest ones spend £3 billion a year in the case of the Nuclear Decommissioning Authority. At the other end of the spectrum, you have an organisation spending £50,000 a year, so it is a very varied bunch.
Q33 Chair: Do you not worry about this? In terms of moving to those saving targets by 2019/2020, the train was on the track. Now the track is being pulled up. Is the train not going to crash?
Alex Chisholm: We are continuing to make reductions, but we are not carrying on blindly with the plans inherited for the two separate Departments now that we are in a new Department. This gives us new opportunities to save costs, which is excellent from the taxpayer’s perspective, but also, as I said at the outset, we have some changes in our priorities; we have some new areas of work. We need to make sure we use our resources in support of those priorities.
Q34 Richard Fuller: I am sorry to double down the pressure on you, Mr Chisholm, but I am afraid your responses have not reassured me either about the ability of the Department to meet its targets. You have said something twice that gives me further concern. You said that you will be spending taxpayers’ money wisely. Okay, that is an important thing, but that is not the same as spending a lower amount of taxpayers’ money. I would have wanted to hear from yourself and your colleagues a commitment to spending a lower amount of taxpayers’ money given, as the Chair has said, you now have a different set of assets.
You have given up the advantages of the BIS Department reductions, because they have now gone to the Department for Education. You have taken in a lower base already from DECC, because they can just cancel capital budgets sometimes and use them to cut down early on. You have given no confidence, certainly to me today, that you are committed to any areas of reduction whatsoever. Right now, I am taking away from your contributions that the target for the Department’s cost reductions are significantly in doubt.
Alex Chisholm: I can reassure you that, in relation to administrative costs, we will continue to reduce those and we will absolutely deliver on the spending round targets that we have inherited. Where I cannot make an absolute commitment is to say that we will spend less taxpayers’ money absolutely because, in relation to capital, if the Government of the day decide that they want to increase the amount they invest, for example, in relation to research, that is something that may well be justified and I do not want to say that that is an impossible outcome of this autumn statement round.
We will continue, absolutely to bear down on our administrative costs, our operating costs, as a group of people working very hard, but I cannot say that we will absolutely spend less taxpayers’ money because it depends on the outcomes of the autumn statement.
Angie Ridgwell: I was just going to come in on operating costs. There are lots of plans in place, particularly on the BIS side, because DECC had already taken out a lot of its savings immediately after the spending review. On the BIS side, there are lots of plans, particularly around using technology to drive down costs. In the transition and transformation plans, we are using those models and applying them across the larger BEIS Department. For example, the actual costs of the desktop technology will be reducing significantly per user, so we will be adopting that across the whole of BEIS.
Similarly, we will continue with the approach to reducing the estate that houses BEIS and the arm’s length bodies, and those sorts of things. So we have a plan, but in terms of aligning that to specific numbers that have not yet been agreed with HMT, we are unable to do that at the moment.
Q35 Richard Fuller: It may also be the timing of the discussion, coming up to November. Can I talk to one of those uncertainties as well that might affect budgets, which is exiting the European Union? Has the Department sent its negotiating position proposals to Number 10?
Alex Chisholm: The way in which the Government are approaching that is very much interdepartmentally. There is a new Department for Exiting the EU, as you are aware. Chaired by that Department, there is a whole series of official‑level groups to gather all the intelligence and to begin to work up policy papers for Cabinet Ministers. One of the four main Cabinet Committees now established is focusing on this issue of how best to conduct those negotiations and to take the UK out of the EU. That is the cross‑government process, so it is not the case that we determine, as a single Department, the negotiating position for the whole Government and, indeed, to the extent that there is a single Department leading that effort, it is another Department, the Department for Exiting the EU.
Our role within this is to make sure we gather all the best available intelligence about the impact, sector by sector, of leaving the EU—both the opportunities and the challenges of doing so—and the implication for the policies for which we have responsibility, whether it be competition policy, company law or consumer policy, and how best we can mitigate any knock‑on effects from that. That is essentially our role.
Q36 Richard Fuller: To get it right, there is a phase where you gather information and you check with people affected who are relevant to the Department. Then presumably there is a phase where you aggregate all that and come to a considered view—maybe the ministerial team will do that—and then they go to the Department for Exiting the EU and say, “This is what we should be trying to get from our negotiations”. Are those the three phases?
Angie Ridgwell: Yes, although that last Department would be part of those ministerial discussions and part of the official‑level workings, so it is very joined up across government.
Q37 Richard Fuller: Good. So how much progress have we made? We have a 30 March deadline. Christmas is coming; I have already seen Christmas decorations. Where are we?
Angie Ridgwell: A huge amount of work has already been done in terms of gathering that necessary information, but clearly it is a massive task. We are talking about 40 years or more of commitments. To able to understand fully what the implications are is something that will take months, possibly years in some cases.
I also recognise, having been in business myself, when businesspeople first come to us and say, “We don’t like the uncertainty; take away the uncertainty”, or they might make some initial demands or initial estimates, we cannot take that at face value. We need to compare those to what other people are saying and the other evidence we have. We also recognise that this is going to be a negotiation and a complex negotiation, not only because of the number of different elements to it but also because of the number of different parties—with the other 27 countries in Europe.
To expect all of that to be done within this short period of time would be unrealistic, but we have certainly made a good start on it as a Department. The Prime Minister has said a number of times that she does not want to provide a running commentary on the process, so perhaps I ought to say nothing more on the matter.
Q38 Richard Fuller: Of course, I do not want to drag you into policy questions like, “Should we be in the single market or not?” That is obviously not the role for civil servants, but you have quoted the Prime Minister. She has also said that taking control of immigration is the most important message. Other than that we are leaving the European Union, it is the most important message in terms of priorities. In your consultation, are you emphasising that as a priority?
Alex Chisholm: That is obviously a political statement and preference. From the perspective—
Q39 Richard Fuller: She is Prime Minister. Presumably, she is speaking for the Government, isn’t she?
Alex Chisholm: Absolutely. From the perspective of our Department, the most common thing that comes up in conversation with businesses is about their ability to get the right skills they need to do the job of a business. In some cases, that relates to being able to get those from other countries in Europe; other businesses are much less affected. There is a very different pattern according to different sectors and different sizes of companies, but that is certainly one theme in our dialogue with business.
Q40 Richard Fuller: Let me just probe you a bit on this. The Prime Minister said quite clearly that the priority is regaining control over immigration. There are others who say being in the single market is most important.
Now, you do not need to get into the debate about that yourselves, but you need to raise that issue in your consultation. In your consultation, are you prioritising access to the single market or following the Prime Minister’s lead and saying that gaining control of immigration is most important and asking how we do that?
Alex Chisholm: The Government have been very clear on what they have said, which is that they are pursuing both of those objectives: both the objective of continuing to make sure there is access for UK companies to markets in Europe and across the rest of the world; and improving the level of control over immigration. Those are the dual objectives the Government have set for this process.
Q41 Richard Fuller: Amen to that. Far be it from me to question the Prime Minister. I think her positioning is quite right. The reality is that there is a second party in the negotiation, and that is the European Union. It has said, “No.” In fact, it has said, “No, no, no”—reminiscent of a phrase here. It is not going to allow the United Kingdom to have access to the single market and restrict freedom of movement.
When are the Government going to wake up and smell the coffee on this and follow the Prime Minister’s lead? There is no point in consulting on staying in the single market when the person on the other side says there is no chance of getting it. You might as well prepare, seeing as it is going to be 30 March, and say, “What are the consequences?” How do you deal with the fact that we are now going to have restrictions on free movement and we are going to be out of the single market?
Alex Chisholm: These will be the political challenges and the diplomatic challenges.
Q42 Richard Fuller: Is your Department’s consultation at that stage of recognition of where we are, or are you still trying to have your cake and eat it?
Alex Chisholm: It is not for my Department to try to resolve all of these issues. We are feeding into a cross‑government approach, which will ultimately be led by the Prime Minister herself, to enable the UK to form its negotiating position with the rest of Europe.
Q43 Richard Fuller: I have a final question on this. I understand that, but, as is said of computer systems, garbage in, garbage out, and the same thing could go for much of Government consultations. You have to ask realistic questions, and it seems to me that, as we have moved through this period, the Government are quite rightly holding the position that they want access to both, but the reality is that the European Union appears to be strengthening its position that there is a choice to be made.
The Prime Minister has expressed her priority. Is the Department’s consultation focused on that or is it focused on, “Let us see what other things we might get in terms of priorities”?
Alex Chisholm: We focus on all of the implications. As the Department for Business, Energy and Industrial Strategy, we are not only concerned with the implications for business; there are also important ramifications for energy. We also naturally do not look at it exclusively from a European perspective. We are concerned with what the access is to all overseas markets, working closely with the Department for International Trade there.
I do agree very much that what we need is good, solid evidence. I am meeting businesses every day of every week, and I encourage them to provide us with that kind of evidence and really solid data to make sure that we can go into this fully informed, with our eyes open and secure the best result we can for the UK.
Q44 Chris White: I will try to lighten the mood a bit. With regard to industrial strategy and the work of the Department, I am very interested in how this develops. Would you suggest that the canvas is still pretty clear in terms of industrial strategy?
Alex Chisholm: We have made a start. You will have seen this letter from the Secretary of State and the speech he gave at the Institute of Directors. He has begun to sketch out something there that is very important.
First of all, he has talked about a dialogue. He has talked about building up something that is not just developed within a Whitehall Department but developed with communities across the UK. This will be built up sector by sector, capitalising on the strengths we have in some important sectors like aerospace, automotive and life sciences, but also taking advantage of new technologies and new entrants, not just protecting incumbents there. It will recognise, very importantly, the differences right across the UK in the way in which the economy operates and the experience of that for individuals as well as firms. He has been very keen to make the most of our science and research bases, to capitalise on the skills we have, to make good any deficiencies we have in the skills and education of people going into the business community.
We must also take the chance to upgrade our infrastructure in relation to transport, energy and digital infrastructure. Above all, we have to be very open to change. We do not want to pretend that change is not happening in the global economy and in our position in relation to the rest of the world, or that these tremendous advances in technology are not happening. We want to make the most of those.
We also want to make sure that this industrial strategy delivers something that not only gives people a very clear picture of the future and confidence in that future, but also, very importantly, tackles these two very long‑seated issues within the UK economy, which I know this Committee is also grappling with: first of all, the low productivity levels we have been experiencing in the UK relative to other major industrialised countries and, secondly, this rather unbalanced economic growth. We particularly want to make sure we tackle those two things as part of this very long‑term industrial strategy.
Q45 Chris White: That is a very helpful answer. As I am sure you know, we had Lord Heseltine, George Osborne and Vince Cable in front of the Committee last week. We talked about industrial strategy, and each one of them said, “Yes, we have one of those. We have had one of those for a considerable length of time.” They all said they have inputted in, and we should have known what it was.
What is your view? Have we just started? Was there one? Do you believe in Vince Cable’s argument about picking winners? I am reassured to hear what you were saying about everything from getting young people to study engineering from a primary school age to investing in UKTI and the infrastructure that joins those things together. What is your view?
Alex Chisholm: Let me begin to answer that in a slightly indirect fashion, by pointing out that nearly 25 years ago I worked at the Department of Trade and Industry, including a spell working with Michael Heseltine. I would certainly recognise that the Government have been interested in questions of industrial strategy over a long period of time. Probably all Governments are interested in having a dialogue with businesses and with citizens as a whole about trying to describe the industrial future for that country.
From that perspective, it is not new to be thinking about having an industrial strategy. It is very clear that this Government see it as a top priority. They are giving a real emphasis to it. The Prime Minister has announced that she wants that to be a cross‑government effort. There is a whole Cabinet Committee devoted to economy and industrial strategy. I am chairing a cross‑Whitehall programme board again devoted to industrial strategy.
That is meant to make sure that it is very comprehensive, that it is a whole‑of‑government effort and that it is built up as well with local communities, not just as a national or regional effort, but actually showing that variety across the country and taking a long‑term view so we can say, “Yes, in 10 years’ time, we will understand where our money is coming from. We have a good future, regardless of these various economic shocks we are experiencing around us.”
Q46 Chris White: That is very interesting. One thing that concerns me is that there will not be a definition of what an industrial strategy is. You talk about a cross‑government strategy. Last week, Lord Heseltine said that the Ministry of Defence has an industrial strategy. I have no idea what that phrase meant. Is it in terms of procurement or in terms of exports? How could you have a Department having its own industrial strategy?
Alex Chisholm: It is probably—or it is certainly—the case that Lord Heseltine knows a lot more about defence procurement than I do, having been a Defence Secretary. I think he was referring to the fact that, in areas such as shipbuilding, obviously, we need to take a long‑term view about our future capabilities and our future needs, and those two must match up. For example, we are obviously building two aircraft carriers at the moment. One of the things there is: do we have in the UK the steel we need for those ships? That is obviously one of the things they have looked at as part of that process.
Chris White: In terms of a strategic industry.
Alex Chisholm: Yes, indeed. That is one of the reasons why steel is important. It is very important for shipbuilding, but also for big transport projects like HS2 and Crossrail. He was referring to that and actually recognising that the defence industry has become very concentrated and a very small number of companies are mainly responsible for almost all of what we provide. There is bound to be a discussion between the Government side of that and the private side.
It is also the case that those big procurements take years and years to deliver. You cannot really take the approach of: “Let me surprise you with my latest idea.” If you do that, you will find that the industry is not going to be ready or you are going to be adding a lot to the cost to the taxpayer.
There needs to be a long‑term, strategic dialogue, understanding our future defence procurement needs and how we can best service those within the UK. I think that is really what he was talking about. By doing that, we can provide terrific security for those firms to be able to invest, to develop their own R and D and to employ their workforces; and that must be a good thing for the country.
Q47 Chris White: I have one last question. On Thursday afternoon, there is going to be a debate on industrial strategy. Will you and your officials be paying attention?
Alex Chisholm: We always pay attention to all the debates in Parliament about matters for which we are responsible, and that will certainly be no exception. You have my reassurance.
Q48 Chair: I am hoping to make a speech in that, so you can make the tea at that point. Chris mentions an important part of the departmental work. How are you reconfiguring the Department to take into account industrial strategy?
Alex Chisholm: That is something that, again, we are still evolving. To give you a bit of an indication, at the beginning we immediately recognised we needed some more resources to put into that, so we quickly transferred a number of people to working on the development of our industrial strategy.
Q49 Chair: How many people are working on it?
Alex Chisholm: I have not done a complete calculation, but we certainly put around half a dozen people into it right at the beginning; I do not know how many people in total. It depends a little bit—I do not mean to be picky—on a definitional question. There is the pulling‑together of all the work, but, clearly, we are not responsible for the work that is happening on skills, procurement or infrastructure.
Q50 Chair: Does that frustrate you? In terms of what the Secretary of State has said and in terms of what you have also alluded to today, this is cross‑governmental, but industrial strategy is in your title. If we do not have a proper industrial strategy, you get the blame.
Alex Chisholm: It means that we need to make a success of interdepartmental working, but that is true for most of our key issues within the new Department. It is true for industrial strategy, for the whole challenge of Brexit and for the effort to achieve decarbonisation of the economy. All of those are whole‑of‑government agendas.
That is probably a wider trend. You can talk to the Institute for Government and other people there. They would suggest that, overall, some of the biggest challenges in public policy now require a whole‑of‑government approach. You cannot just say, “That is the one Department that deals with that, and nobody else needs to worry about it.”
Q51 Chair: The thing that concerns me, though, Mr Chisholm, is that your Department kindly gave us, the Committee, an organisational structural chart. It is very clear in it that you have the remnant of BIS, taking into account changes to Education, the remnants of DECC, and then right at the bottom you have industrial strategy cross‑cutting, a little bloke on a desk by himself.
In terms of those big lines of policy, in terms of business, energy and climate change and industrial strategy, you have literally half a dozen people working on what the Prime Minister said was a really important driver of her Government. What are you doing to change that?
Alex Chisholm: First of all, we have not tried to scale that diagram to show the number of people working in different areas.
Q52 Chair: You did say six people.
Alex Chisholm: That is six additional people, but we already had people working on it. You can look at our involvement with the industrial sectors. For some of the most important work we do, in relation, for example, to automotive, steel, aerospace or work in the scientific community, there would be hundreds of staff. I do not want to give any misleading impression there; this is one of our biggest priorities.
In answer to the question from the Committee saying, “Show us your organisation chart”, we immediately provided that. Actually, we will continue to develop that organisation chart. At the moment, we are in the process of finalising a new organisational structure, which we will be announcing in the next few weeks.
Q53 Chair: The letter to us from the Secretary of State mentions a number of things. I will quote from it. “To be successful, the industrial strategy will need to deliver an upgrade to our infrastructure.”
Alex Chisholm: Yes.
Chair: That is presumably the responsibility of the Treasury. Is the Treasury giving BEIS money in order to help that?
Alex Chisholm: Well, you are right that the Treasury would lead on infrastructure. It has some very important inputs to that from the National Infrastructure Commission, and it works across all of government to deliver against it. If it is a matter of transport, clearly the Department for Transport would be the lead Department. If it is digital infrastructure, the Department for Culture, Media and Sport is in the lead. When it is energy infrastructure, that is our area of lead.
Q54 Chair: You are the Department for industrial strategy. The Secretary of State has written a letter to me saying that, in order to be successful, infrastructure will need to be done. My question is this: in recognition of that, has the Treasury given BEIS money in order to improve infrastructure with regard to that?
Alex Chisholm: Not at this point.
Q55 Chair: Okay, thank you. Can I just mention another thing? He goes on to say that, in order to be successful, we have to improve our education and training system to provide the skilled workforce that will be needed in the future. Has the Department for Education given BEIS any money to ensure the industrial strategy is successful?
Alex Chisholm: I should try to clarify that what is involved here is not the transfer of funds from one Department to another. Something like education and skills, which was previously being done by BIS, is now being taken forward by the Department for Education. We recognise that an industrial strategy needs to include the skills that the workforce has.
If you had an industrial strategy that did not consider skills, training or what is coming out of higher education and the schools, that would be an incomplete industrial strategy. That does mean we need to organise all of that activity ourselves. We need to make sure there is complementary activity across government so that it adds up in toto to a coherent industrial strategy. We are responsible for delivering some parts of it; other parts are for other government Departments.
Q56 Chair: My point is that the term “industrial strategy” is on the brass plate. You have a responsibility to introduce, execute and co‑ordinate an industrial strategy, but you are so reliant upon other Departments, which have their own degrees of responsibility, that you will not be able to achieve this. It is a case of: what power have you got, particularly in terms of being backed up by financial power, to ensure this happens?
Alex Chisholm: The lead on industrial strategy has come from the Prime Minister herself. As I mentioned, she has established a cross‑government Committee on the Economy and Industrial Strategy, which she herself chairs. You could hardly ask for greater support than that. She said it is going to be an absolute priority, and I am sure all of government will pay attention to that.
Q57 Chair: Is that working? Presumably, she decided on the new Department’s name. It sends out a very clear message.
Alex Chisholm: Yes.
Chair: Is that working through Whitehall? I am not asking you to betray Civil Service confidences, but I am keen to hear that there is real, effective co‑ordination across government taking place to produce a proper industrial strategy. With that Cabinet Committee, the Prime Minister is saying, “Industrial strategy is important. Departments across Whitehall have to listen to BEIS in terms of what they are doing.” Do you feel incredibly powerful, based upon that, given the Prime Minister’s attention to this?
Alex Chisholm: The co‑ordination has been effective. There has been a real coming together of Departments. People have given it priority and attention. I am satisfied, to date, with the way that has worked. Obviously, it needs to continue to work well. That is going to be a priority.
Q58 Chair: Could you give us any examples? Given that it is early days and given that you have said yourself—you have freely admitted it—that not much progress has been made, because you are starting at a relatively low base, what specific examples of this working in practice have happened? What happens when you get to the really crunchy questions about resource allocation? That is when it breaks down, isn’t it?
Alex Chisholm: There are two things. One is that the Government expect to make a statement over the next few weeks or months setting out their position on industrial strategy. Quite a lot of work has already gone into the preparation of that across different government Departments—including, and led by, ourselves.
Secondly, as you say, there is a financial aspect to this. It is not the only aspect, but that clearly is something that can be looked at by the Chancellor, taking account of the views of all of government, including our Secretary of State, about where best to devote the nation’s resources.
Q59 Peter Kyle: I would like to continue on the skills side, please. In all of the inquiries we have done here in the year and a bit I have been on this Committee, whether it is on the digital sector or right through to productivity, every single business that comes to give evidence to us has said that skills are its number‑one priority. A few of them have said finance, access to finance and what have you, but skills have been absolutely central. It is a nut that has still not been cracked, even when skills were in the Department for Business. Now skills have been removed from the Department.
I would like to press you a bit further than the Chair. You cannot make the argument with conviction, surely, that your influence over the skills agenda, on behalf of British business, is going to be increased by taking it out of your portfolio.
Alex Chisholm: It is true that you cannot solve the issues in skills quickly; it is a complex issue. You have to look at what happens not only at school level, but also in technical colleges and higher education. You have to look at the mix of different skills across the economy; you have to look at the things that are of immediate use and things that are more for medium‑term and long‑term trends. There are big changes in the nature of work we have.
Only yesterday, there was a big report put out in relation to the construction sector, which was quite critical of the way that sector operates in terms of its ability to provide long‑term training as opposed to just bringing workers in. Obviously, we have been involved as a Department in some big nuclear decisions recently, particularly in relation to Hinkley Point. That is the first new nuclear plant in the country for a generation, and that will provide a terrific need for new skills, initially in the construction phase, but also nuclear engineers and other workers going forward.
It is very important that, in every segment, we are responding to the way in which the future opportunities are opening up. That requires close co-ordination with central Government, with local authorities, with local enterprise partnerships, with educational institutions and with technical colleges. That is what is required.
Q60 Peter Kyle: I could see and understand the levers you had as a Department previously, because they were in your Department. Those levers you had over further education, higher education and some of the wider skills agenda have been taken away to another Department. Now, we all know the tensions and priorities are different between Departments, and Cabinet Sub-Committees are a very powerful tool. In my experience of just a couple of years in the Cabinet Office as a special adviser, they can be fantastic tools for getting things done between Departments. What business really wants, though, is long‑term consistency and for their voice to be heard very effectively.
I cannot see, in these machinery of government changes, that you have additional levers and power over skills. I think you have fewer levers and less power over the skills agenda than you had previously.
Alex Chisholm: I agree with you that there is a need for long‑term clarity and consistency. The industrial strategy I have tried to describe gives a basis for that. I would not want to emphasise the significance of the machinery of government changes. One of the most significant things that BIS was doing to advance the skills agenda was the apprenticeship programme. That apprenticeship programme is still rolling out within the Department for Education and, indeed, the people working on it are the same people who were working on it before. Indeed, the software platform in support of that is being developed by our staff now.
It is not as if this change in the machinery of government has brought about a complete stop and people are saying, “We do not know what we are doing on skills any more.” There is actually much more continuity than that.
Q61 Peter Kyle: I guess my point is that, to bring it back a little bit, business has said consistently that it is more interested in soft skills and it is less interested in standard rote‑learning and so forth. We have been through a period of government where there was a drive much more towards a drier exam‑based system, which business consistently said was not in line with what its needs were.
Your Department is saying what business needs, and then you have a Department for Education with a very different set of priorities. Lord Baker’s report is remarkably clear on this, criticising his own party in government when it comes to some of the drier aspects of academic learning. How are those tensions going to be resolved? Ultimately, will your concerns be expressed up through a Sub‑Committee and will the Prime Minister make a decision?
Alex Chisholm: It is also a question you must put to the Department for Education: the extent to which they will continue to make sure the output of our educational institutions is suitable to meet the needs of business and industry. My understanding is that remains a priority for them.
Q62 Peter Kyle: My final question to Lord Heseltine last week was about the fact that, as a child, I remember him getting in a bus, packing it full of industrialists, driving off to the north of England and deindustrialising areas. I asked, if he had that bus today, who he would pack it full of and where he would drive it to. He was very clear: he instantaneously said that it would be to primary schools, because skills is the big problem we have now. That is why it is paramount. Everyone seems to accept it is paramount, but the Government do not seem able to give business the real, demonstrable voice in education that it has been calling out for.
To move on to one final bit, you have mentioned the words “long term” several times, and they have been mentioned here. This came up in the evidence session last week with Vince Cable, right through to Lord Heseltine and George Osborne. In the last six years, when we have had the coalition Government, the first year of a David Cameron Government and then a Theresa May Government, we have had three very different approaches to industrial policy, in a year where they were shunning the use of the phrase “industrial strategy”.
Again, business has said quite consistently that it would rather have a long‑term strategy that it does not agree with bits of but on which it actually knows where it stands than a policy that changes every couple of years. You cannot predict the future, but, based on the last 10 years, there have been such fundamental shifts in industrial strategy that if you could make a plea to politicians in this regard, if there was something we could do as a Select Committee to help work towards a longer‑term strategic view of policymaking towards industry, what would it be?
Alex Chisholm: The Government formed in July have been very clear that they want a long‑term industrial strategy, and that is a very strong commitment and a valuable one. The precise ways in which you go about that need to continue evolving, because the economy continues to grow very quickly around us. Take a big industry sector such as social media. Now, everyone would recognise that is very important from a consumer perspective, but there are also a lot of people who are employed and working there. Ten years ago, if you had spoken about the social media sector, people would have said, “What are you talking about?” That was not something on the horizon at all.
We should make sure that we are taking a forward look and we do not get too frozen in time with a particular model of what an industrial strategy consists of.
Q63 Chair: Does that mean you are moving away from a sectoral approach? Is a sectoral approach just special pleading from incumbents?
Alex Chisholm: We need to recognise that it is not only existing sectors but new sectors. Some of the biggest opportunities are actually coming between sectors. I was struck the other day, talking to Rolls‑Royce, which is what you would regard as a kind of bellwether manufacturing company, by how much of its revenue today comes from services and ongoing maintenance and how dependent it is on software.
The nature of the economy is changing a lot. We should not get too cast in stone and say, “We have written it down, so this is what the industrial is, and we are not interested in any way of developing that going forward.” It has to be something that evolves, but within it there should be some consistent principles and long‑term goals. That will be very valuable for Government to provide, and anything your Committee can do to encourage that process we will be very, very grateful for and appreciative of.
Q64 Peter Kyle: For my final question, I was going to lay a trap for you about how you always speak to big businesses, but you just fell into it before I even opened my mouth. It is great that you have talked to Rolls‑Royce. Every single Secretary of State and Minister we have had here gives a rollcall of businesses that call them, that they speak to and that they have spoken to in the last week. Every one of them is a large company, for very understandable reasons: when a large company makes a call to a Secretary of State, the Secretary of State returns the call. Other businesses do not have that power; they do not have that opportunity, for very, very understandable reasons. There are 4.6 million self‑employed people or lone workers. They cannot all make a call to the Secretary of State, but small and medium‑sized companies need that voice as well.
I am not asking a political question; it is a structural question. As a Department, how do you make sure the voices of small and medium‑sized businesses and, increasingly, self‑employed and lone workers are heard in a concise, powerful way?
Alex Chisholm: That is a really good question, and it is absolutely essential to do that well. As you may know, I used to be at the Competition and Markets Authority and we had a similar interest there. Large firms were organised to be able to represent themselves and give evidence to Government. We did not want to be unable to recognise or hear what small firms are doing. I have actually run a small business myself in the past, so I know what it is: you do not have the time to invest in that effort. We went out of our way at that time to reach out to small businesses, not just to small‑business representatives, important as they are, like the Federation of Small Businesses, but also through surveys and getting out of the office, going up and down the country and meeting with people.
That is something to which this Department is absolutely committed. You will have already seen that the Secretary of State announced that he has allocated the local enterprise partnerships to different Ministers, the six Ministers we have in the Department. They all have different areas of the country to cover. Those are very good mechanisms for making sure you listen to smaller and medium‑sized business and not just big ones, but it is a real call to arms for all of us to make sure we do that.
From the innovation and entrepreneurial point of view, we spend a lot of money trying to encourage innovation. That is one way of trying to make sure those schemes, again, are not overdesigned and that not only big companies can get into them. We want to make sure that the innovators and the entrepreneurs of the future can also benefit from our innovation. That is going to be good for us and good for the nation.
I could not emphasise more my agreement with what you said there: we have to make sure we engage with small and medium‑sized companies as well as large ones.
Q65 Chair: Peter mentioned Lord Heseltine coming before us last week and, again, mentioned what I thought was quite an evocative phrase used by Lord Heseltine: that industrial strategy starts in primary schools. Given that cross‑cutting agenda and the avenue I have been trying to push you down, Mr Chisholm, what impact and what influence does your Department have on the design of primary school policy?
Alex Chisholm: We do not have any direct responsibility for that, but, from the point of view of political direction, that is a question on which, as a previous questioner recognised, there is this Cabinet Committee trying to give a sense of priorities and what it wants out of this industrial‑strategy process. That has the opportunity to say, “Look, what are we doing for the way in which people are taught in schools? How is that preparing them for the opportunities in the wider economy?”
Again, personally, I am very sympathetic to the idea that entrepreneurship is something that could be taught as part of the school curriculum. Certainly, people need to be opened up to the idea of working in business, because that is actually what most people will end up doing. There are 5.5 million firms out there.
Q66 Chair: That is something that you are pushing in the Sub‑Committee: “Let us have entrepreneurship on the curriculum.”
Alex Chisholm: One aspect of the overall industrial strategy has to be about skills, and skills is not something that happens only in higher and further education. It depends on what happens in schools as well, and we recognise that, yes.
Q67 Chair: I have a couple of final questions, if I may. Could you update us on the timing of the publication of the carbon plan?
Alex Chisholm: Yes. The Government have made some initial steps in relation to this. First of all, they have said they want to ratify the Paris Agreement on Climate Change. They have also adopted the carbon budget 5, which covers the period from 2028 to 2033. We have made great progress on the carbon budgets to date. The first carbon budget we met. The second and third we are well on course for, and the fourth one we have made inroads into.
This is the fifth carbon budget. In order to respond correctly to that, we have given ourselves enough time for that cross‑government effort. It gets a little bit harder, each budget, to achieve. This one in particular requires a very significant change in the way in which we organise our transport systems and our heating systems.
We have had some great advice from the Committee on Climate Change and other expert bodies. We are expecting to pull that all together over the course of the months ahead. Lord Deben of the Committee on Climate Change said he expected that to be completed by the end of February, and that seems to me a very realistic timeframe.
Chair: I thought it was by the end of the year. It has slipped just slightly.
Alex Chisholm: I think he said February.
Q68 Chair: My understanding was that it would be the end of the year. You say it is getting harder with every successive budget. Is this not a good test of good cross‑governmental working in order to have a proper industrial strategy? A key ingredient of industrial strategy is how we are going to green our economy.
Alex Chisholm: Yes, I absolutely agree. To give a specific example of that, take the move towards electric vehicles, which is something very exciting and where the UK seems to have a good industrial position. We are interested in that from an industrial perspective, but also, clearly, from the point of view that electric vehicles are very good for air‑pollution levels, which is important for other Departments and the Government as a whole.
It also has an implication for the way in which we use electricity, because, clearly, the timing of how the batteries in cars are charged up and whether they can release electricity back into the system can make a huge, positive difference to the load balancing, which is an essential part of the electricity network. That just gives an idea of how you have already touched upon industrial, energy and environmental matters, and yet those are things most people would recognise as matters of transport policy. That is a strong indicator and proof of the fact that it does require cross‑government effort.
Q69 Chair: In terms of investors looking at this who want to make long‑term capital‑allocation decisions based upon the carbon plan, you are confident in stating quite firmly that it will be published by the end of February.
Alex Chisholm: That is our plan, yes.
Q70 Chair: Thank you. My final line of questioning, Mr Chisholm, is this: what performance measures do you work to, when it comes to the Department?
Alex Chisholm: There are a number of performance measures. One of the first ones is a financial performance measure. The way that is set up is that the accounting officer for the Department cannot exceed various limits. That is in terms of the Department’s own expenditure. In terms of expenditure we commit other people to, the levy control framework is also an outside limit, which we cannot exceed.
Those are performance measures, but that only begins to describe them. For each area of our activity, we look not just at the amount of money we have spent, but at what we achieved for it. There are lots of different indicators of that. For example, if you are looking at the Nuclear Decommissioning Authority, it might be: “What progress is it making in tidying up the legacies of the past?” It could do that cheaply but make no progress, which would not be a gain for the taxpayer. That would not be good for the public. We want to make sure it is actually delivering against its plans for what it says needs to be done, month by month, year by year.
That is true for us as well. We also look at what the indicators are. We do a lot of surveying to see what people think about us in the Department and what they think the objectives of policy are. Are we attaining those objectives? We are very open to feedback; we value the feedback we get from parliamentary Committees and from the NAO.
Internally, we look at how much benefit we are getting from the staff who work in the Department. At the end of the day, that is probably the single most important thing that we can do. We make a huge effort on things like people surveys and very careful engagement processes, to make sure that we get the most out of the people we have working in the Department, that they are suitably skilled and that they are well used in areas that conform with the Government’s priorities.
Q71 Chair: The reason I mention it is that, when the previous Secretary of State for Business was appointed, within about a month we had a meeting with him and he was very clear that he had three key priorities. He was insisting that the Department and the Permanent Secretary allocate and apportion resources according to his three main areas: producing £1 trillion of exports; producing 3 million apprentices by the end of the Parliament; and identifying £10 billion of deregulatory savings by the end of the Parliament.
Do you have something similar? The Secretary of State and the Prime Minister, based upon her interest in industrial strategy, are saying, “These are the key areas that we want to achieve and areas we want to look at. You have to allocate resources in the Department to make sure that happens.”
Alex Chisholm: As I said at the outset, we have begun to indicate some areas of priority, but we have not finalised that process. It is fair to say that we have inherited single departmental plans from both BIS and DECC. We need to create a new single departmental plan for the whole of the Department.
Q72 Chair: When will that be? When will we have that on our desk?
Alex Chisholm: We have begun work on that, and we need to finalise it with Ministers and the Department.
Q73 Chair: What sort of timescale are you looking at?
Alex Chisholm: I do not think we have a specific timeframe for that at the moment.
Angie Ridgwell: We do not have a specific time, but I would anticipate that it would align with the supplementary estimates and the agreement of the budgets.
Q74 Chair: Again, forgive me. Maybe it is just my impression. There does not seem to be any urgency to any of this in terms of making sure that savings are on track, making sure the priorities are put in place and making sure that departmental objectives are carried out. It seems to be, “That will just happen whenever.” I am worried about the management of the Department on the basis of that. How can you reassure this Committee?
Alex Chisholm: We are going about things with absolute urgency, but we are also very conscious that some of the work we are doing is some of the most difficult, demanding work you can imagine. Whether it is on the decarbonisation we spoke about, creating a long‑term industrial strategy or dealing with the challenges of Brexit, none of those things are going to be quickly resolved with slapdash effort. All of them are going to require really careful, long‑term engagement with staff, and careful analysis and evidence with a lot of external stakeholders.
Do not feel that because I do not have the answers to all those questions, we have been sitting on our feet. In fact, we have been absolutely busting ourselves to bring the Department together and to get out some early decisions, which you will have seen that we have been able to do, to make sure the outside world notices no interruption in the service it gets from our Department.
Meanwhile, we are paddling away beneath the surface very rapidly to make sure that we are in a condition to deliver an even more effective Department at lower cost to the taxpayer.
Angie Ridgwell: I was just going to add, purely on an operational level, that we have brought together our governance structures. We have monthly meetings to look at the performance of the Department, along with financial and risk assessments. All of the ongoing projects inherited by the Department are still formally monitored in formal committees with external members on them, so it is not just the organisation looking at itself.
We maintain all those operational structures, and the investment gateways continue as well. Not only are we doing the new stuff; we are making sure the existing work we have taken on is still monitored and managed regularly.
Alex Chisholm: Yes. Because Doug has been sitting very patiently here on my left, I will give him a chance to come in here. One of the other ways in which we are able to make sure we deliver on our departmental plans is, obviously, how we manage our people. We have just hit the mid‑year review process.
For my part, I have just gone through with all my direct reports their priorities over the next six months, taking account of the new Department and the things that have been said by our Secretary of State and the Prime Minister about what is expected of us. That process is rolling out right through the whole Department, but, Doug, you might want to add a bit to that.
Doug Watkins: Yes, every individual at this point in the year would have their mid‑year review with their line manager. That is continuing, as we have done before. We will get the data on those reviews and how their performance is going. We have a fairly rigorous process by which we assess people’s performance and then development plans sit behind that. That all continues.
There is some alignment to do between the two Departments coming together, but that is relatively smooth. We will have in place for the end of the year a single departmental position on how all people are managed on all their performance issues. There is good progress being made. You should not be concerned; we are foot to the pedal on actually making sure that is happening.
Q75 Chair: I have a couple of questions with regards to that, Mr Watkins. In respect of the question I asked earlier on in the session with the Permanent Secretary, given two Departments are coming together, presumably you are identifying duplication. What work is carried out to make sure staff can be redeployed rather than being made redundant?
On a broader, more strategic point, does the Department have the skillset required to implement what the Prime Minister wants in terms of business, energy and industrial strategy, which are now in a different place to where they were before prior to machinery of government changes?
Doug Watkins: If I take your first question first, when it comes to the areas of overlap and duplication, as the Permanent Secretary said earlier the areas we are most likely to have that in are the corporate services areas. We have deliberately taken the view that we want to apply a recruitment freeze in those areas so, through churn and natural wastage, we can avoid redundancy issues arising needlessly and, through the headcount controls and recruitments, keep a tight ship for everyone in corporate services.
There is already evidence underway from which we can see that those numbers are coming down. We have not yet finalised the numbers we want in each corporate service in the planning we are doing between now and March. There is good evidence that we are already getting a grip of the corporate services areas where the duplication arises.
When it comes to the skills we need going forward, I am responsible for the people and structure part of our transition plan. In that, there is a stream of work on skills. We have just begun the work there that will run from now through to March to assess, as the policy landscape emerges, whether we have the skills to match that. We will be developing plans for how we source those new skills, if we have gaps of any kind or we need to improve the people we already have. There will be a consideration around whether we improve the people we already have, whether we buy in new skills and how we go about that; but that work is probably too early to call right now.
Q76 Chair: What is the timescale you are working to on that?
Doug Watkins: Between now and March, we will have the complete picture about both the skills we require and our work on whether our audit of our people matches what we need and where our gaps are.
Q77 Chair: Presumably, in the next financial year after that, following that exercise, there will be some degree of policy strategy going forward to say, “These are the areas where we have fewer skills and we need to recruit,” or whatever.
Doug Watkins: Yes, absolutely.
Alex Chisholm: As well as what we are doing ourselves as a Department, there is, again, obviously a strong interdepartmental aspect to that. If you choose areas such as commercial or digital skills, which are very important, it is not the case that every Department has to have all the skills it needs in those areas, because there are certain bodies like the Government Digital Service that provide those services. There is the Crown Commercial Service now, providing a lot of commercial services. We are able to draw on other Departments’ strengths to bolster any gaps we have.
Q78 Richard Fuller: I want to draw your attention back to the last but one comment by Mr Chisholm regarding the areas of responsibility. One of the themes has been about the budget and finances of the Department. It is just fair to comment that this Department has very substantial uncertainties that have come in. In a large part of its work, from a financial point of view, there are considerable areas of uncertainty. You have substantial change from transition, because, of all the changes in government, this is probably the most significant in terms of change. That is before we even get to the November statement.
What I took from that, Mr Chisholm, was that, in this Committee’s oversight of the expenditure, we just need to bear in mind the substantial amounts of disruption in this Department compared to other Departments in government.
Alex Chisholm: Thank you for your appreciation.
Q79 Chair: Mr Chisholm, Ms Ridgwell, Mr Watkins, thank you very much for your time. I hope we can have a good and constructive relationship. We obviously have a responsibility to scrutinise the organisational activities and the financial management of the Department—and we will take a keen interest in that—but, ultimately, we want the same things. How do we improve businesses, making them more productive and profitable? How do we ensure that we have a successful transition to a low‑carbon economy? How do we have an industrial strategy that makes us competitive? We are all working to that shared agenda, and I look forward to working with you, Mr Chisholm, to allow that to happen.
Alex Chisholm: Thank you very much, Chair. I hope this is just the beginning of engagement with this Committee. I look forward to further formal sessions like this, but I also welcome the chance for the Committee to visit our Department, to meet with other members of staff and to engage further on this very important common agenda.
We also look forward to seeing the findings of your own separate inquiries into industrial strategy, corporate governance and other areas of great importance to the Department.
Chair: Thank you very much. Thanks for your time.