Business, Innovation and Skills Committee
Oral evidence: The Work of the Department, HC 500
Wednesday 14 October 2015
Ordered by the House of Commons to be published on 14 October 2015.
Members present: Mr Iain Wright (Chair), Paul Blomfield, Richard Fuller, Peter Kyle, Amanda Milling, Amanda Solloway, Jo Stevens, Michelle Thomson, Kelly Tolhurst, Craig Tracey, Chris White
Witnesses: Rt Hon Sajid Javid MP, Secretary of State, and Martin Donnelly CMG, Permanent Secretary, Department for Business, Innovation and Skills, gave evidence.
Q1 Chair: Secretary of State, Permanent Secretary, good morning. I am really grateful, on behalf of the Committee, that you have been able to spare some time to discuss the work of the Department and the Department’s Annual Report. As we have said before, Secretary of State, we really welcome a warm and added‑value relationship between the Select Committee, you and your ministerial team, so I am grateful that you are here. May I start with a fairly basic and fundamental question? What is the purpose of BIS?
Sajid Javid: First of all, thank you very much for your opening remarks. May I also take this opportunity to welcome you to the Chair and the other Committee Members to their roles? It is great to have this opportunity to appear in front of you for the first time and answer any questions you have. I welcome the scrutiny, which helps the Department and which we will of course focus on now to perform even better.
Maybe one way I can illustrate the role of the Department is by sharing with the Committee right now a set of statistics that are directly relevant to the Department and, in some ways, its performance and the role it performs. They have just been released in the last minute or so. We now have, in Britain, a record number of private‑sector businesses. It has reached 5.4 million. Those businesses have helped to contribute to what is today a new record high in employment, which has now hit 31.1 million, which also represents the highest employment rate this county has ever had, at 73.6%.
Some of those jobs also reflect the big increase in apprenticeships we are seeing. The latest statistics, as of this morning, show a record rise in the number of annual apprenticeship starts to 492,000 for 2014‑2015. In fact, the total number of apprenticeships for the last parliament has just been revised significantly upwards by the ONS to 2.38 million.
These figures probably go to demonstrate exactly the kind of things this Department is responsible for, not on its own, alongside other Departments, especially the Treasury. Our responsibility is about making sure we have a dynamic, competitive economy that creates jobs, and therefore opportunities, for people of all ages in our society and also deals with some of the long‑running challenges we have had in our economy, especially around productivity, on which we might touch later today.
Q2 Chair: I want to press you on this. In terms of your distinctiveness, where you add value, what is the point of the Department? There is no egotistical desire to expand a Whitehall empire. You seem a very reasonable, modest man, unlike some of your predecessors. In that regard, there is not that need, not that burning political wish. A lot of what you have said could be carried out and successfully completed with a revised, enhanced Treasury and a beefed‑up Department for Education and Skills. Where are you adding that distinctive added value in order to make a real difference to developing a more enterprising, competitive economy for Britain?
Sajid Javid: Some people have suggested what you have just mentioned, Mr Chairman, but I think that would be a step backwards. The reason is that it is good to have one Department with all its officials and advisers thinking about all the bits and pieces that the Government can directly influence that have a big impact on business, productivity and employment. You will know and Members may know that I spent some time in the Treasury before. I was a Treasury Minister. It has a role to play, of course, but it also has a role to play in new Department budgets and other things. Not every decision the Treasury takes is about UK productivity. If I talked about some of the priorities of my Department, it would also help illustrate how all of these things are interconnected. It is therefore good to have some kind of joined‑up thinking in Government.
That would be around, for example, skills. Our apprenticeships target is well known, both the quantity—we want to take it to 3 million starts in this parliament—and that we want to make sure we raise the quality of apprenticeships at the same time. We want to make the economy more competitive, which means deregulation, and how we do that would have a direct impact on our skills objectives as well. Labour market reform is a big issue in the Department in terms of how we take that forward. Of course, we have a Bill in front of Parliament right now: the Trade Union Bill.
The Department also plays a big role in innovation, research and science spending, which would represent the Government’s contribution to that. Here you have a Department that thinks about where the Government are going to contribute and how we get the maximum value for money from that, how we leverage that investment so we pull in more private‑sector investment. As a country, we still have a low R and D rate as a percentage of our GDP compared to most of our G7 competitors. Again, it is good to have a Department that is thinking about all of these things in one space.
We do, however, need to get more Government Departments, my colleagues around the Cabinet table, pulled in and working more effectively, perhaps, than in the past with reaching some of these goals. There is a role for other Government Departments. I will give you one example. There has been a big focus over the last few months on how we boost exports. Other Government Departments like Defra, for example, would have a role to play with food and drink exports. We can do a bit more of that joined‑up thinking, but it still makes sense to have one Department that is absolutely focused on this.
Q3 Chair: You are protecting the Department in discussions around the Cabinet table. You see that as a role, almost as a counterpoint to the Treasury, as an individual Department for growth.
Sajid Javid: I am standing up for role of the Department always, absolutely.
Q4 Chair: How is that happening when you will be charged with undertaking significant reductions in operating costs? The comprehensive spending review is imminent. Something in the region of 30% to 40% in respect of operating costs will probably be reduced. That will have an impact of about £350 million in annual expenditure for your Department. There will be a similar reduction in headcount. You were talking about deregulation, reform of the labour market, a massive boost in skills and exports. Do you have the headcount, the professionalism and the expertise to provide those, given the scale of cuts you have to implement?
Sajid Javid: Yes, I do. The first thing I would say, directly related to that, is this. If we just step back a bit and ask ourselves a question that is directly related to this, Mr Chairman, if you allow me, why is my Department being asked to make savings and find efficiencies? That is because, despite the overall Government budget deficit falling by 0.5% of GDP in the last five years, it is still a large deficit, certainly when you look to other European countries.
Every business that I have ever met, certainly, would agree that it strengthens the overall economy if your country lives within its means, if the Government spend what they take in taxes. It is of direct benefit to businesses—whatever line of business they are in—that we have a stable, growing economy that is optimistic, which therefore will attract more investment and keep interest rates lower than they perhaps otherwise would be. That kind of confidence from a lower deficit is hugely important for business.
Q5 Chair: Secretary of State, should you not be essentially the Department for the future? A pound spent by your Department now in apprenticeships, in skills or in innovation will reap massive rewards in the future. Should you be a protected Department?
Sajid Javid: My Department should make a contribution to savings and investment, but without compromising on the objectives it has, the kind of objectives I have mentioned but no doubt we will talk about further. It is right that the Government have priorities when it comes to Government spending. The Government have set out their priorities in terms of health spending, schools spending and defence spending. When you take into account those priorities, it does leave my Department as the largest unprotected Department. Clearly, I will be asked to make the sort of contribution that would be expected from my Department towards savings.
The key is: can that be done in a way that does not damage the objectives of this Department in terms of helping businesses, growth and investment? I think it can be. We are going through that process now, but I can share with you a couple of examples of how it may be done. In the budget that took place right after the election, once the new Government was formed, there were a number of announcements that related directly to my Department. One of them was the introduction of the apprenticeship levy, which is yet to be introduced. We can talk more about that later, if you wish, but that is a way in which we demonstrate that we can push more of the cost of apprenticeships onto the more direct beneficiaries and use that to create a long‑term sustainable way to pay for higher quality apprenticeships, but, at the same time, take some of the burden off both my Department and, in this case with apprenticeships, DfE potentially as well.
Q6 Chair: Could I probe you on that?
Sajid Javid: Yes.
Chair: Is that approach somewhat contradictory? You talked about one of the big objectives of your Department being deregulation, but you have just said you want to move the costs onto beneficiaries. Is it that you are trying to deregulate your own Department at the expense of businesses and people who want to train?
Sajid Javid: No, not at all. I think the two things can work together. For example, we might get on, later, to the Enterprise Bill. That is an example of where we are trying to remove more regulations that can get in the way of doing business and, ultimately, in the way of enterprise and jobs growth. We have a challenge, however, which business actually agrees with. When you meet business—and no doubt you do regularly, Mr Chairman—one of the top two or three things they might mention in terms of long‑term challenges they face is skills. They also accept that there is a role for business to play in that. It is not just looking to the Government to design the apprenticeships and pay for everything. It is reasonable for Government to say, “We must share the costs for this.”
What I did when we developed this plan on levies was to look at what other countries had done. Some things I see in other countries I do not like and some countries we can learn lessons from. It is sensible to look at best practice. Most countries in Europe—certainly the larger countries we compete more directly with—have a form of levy on business. It seems to have worked well.
I also reflected on the fact that, over decades, under successive Governments, British businesses, on average, have invested a lot less than their European counterparts per head in employee training. I thought, “Something needs to happen to really move the dial on this, but it has to be long‑term sustainable.” If it was all Government‑funded, there would be a constant concern from business: “Is this sustainable? Is it going to work for the long term?” On apprenticeships, I want to see more four or five‑year apprenticeships, for example. Clearly, a business will think, “Is the money going to be there?” I think the levy was and is the right approach. That is an example I wanted to share with you where I think we can both meet the objective and lessen some of the financial demands on the Department.
Q7 Chair: That is very helpful, because I want to probe on how you see the approach to the scale of reductions in costs for your Department and how you are going to carry that out. This is a bit crude, but you will understand my point. Is it a case of top‑slicing and salami‑slicing throughout individual activities of the Department, or will it be more strategic in thinking, “Actually, the Department will not do certain activities anymore. We will pass the burdens or the risks onto other practitioners, but BIS will not be doing this anymore”? What is going to be your approach to the cuts?
Sajid Javid: It certainly will not be this salami‑slicing approach you mention. That is clearly the wrong approach. I and the team are looking at what the key deliverables and key priorities are, and clearly prioritising certain areas, but also making sure we are delivering them in the most effective and cost‑efficient way.
Apprenticeships are one example. Another one we may come onto is the decision to switch, in the HE sector, maintenance grants to maintenance loans. It was not an easy decision to make, but there is no evidence that it will have an impact on student numbers and students desiring to go to university, or an impact on something that is especially important to me, the number of students from disadvantaged backgrounds that go into HE. That, in itself, will save money, ultimately in the long term directly for the Department, which might be used in other areas.
I can share with you the principles as we approach the SR date. I will certainly want to protect investment that has the biggest impact on productivity. Productivity is probably the highest priority overall for my Department over the next five years. Where we can—it is not always possible—I want to shift cost away from the taxpayer more directly to the beneficiary.
I also want to make sure we are as efficient as possible in the Department, for example in our own admin costs. We have had a process that started soon after the election, which we have internally called BIS 2020, where we are looking at the admin cost of how we run the Department itself. Are we actually getting value for money? For example, I have some 45 partner bodies. Do I still need 45 partner bodies? Are there costs, middle‑office costs or other costs, that can be shed between those bodies? I have over 80 locations that my Department operates in. Do we need 80 locations? I do not think so. Even taking an individual location—for example, our head office here on Victoria Street—are we getting best use of the floor space we have? We need to look at all of these issues, and we are. That itself can save a considerable amount of money as well.
Lastly, there is deregulating. There may well be—you just touched on this—activities that we currently do that, when we look carefully, we say, “That is either not a priority area anymore or it can be better done. By deregulating, you will find a more cost‑effective way.”
Q8 Chair: Do you know what those activities may be at this moment in time? Could you share them with the Committee?
Sajid Javid: No, not yet. We have made good progress on identifying areas for savings and efficiency—in some areas more than most—but we are not there yet in terms of reaching the final point. We will, of course, when we get to the spending review date, have sorted all of that out. I can assure the Committee it will follow the broad principles I have just shared with you now.
Q9 Jo Stevens: Secretary of State, I wanted to ask you about apprenticeships, which you have talked a little about so far. We heard evidence on 8 September from business leaders and business groups on their concerns about the cost of the levy and the potential impact on recruitment. How do you envisage the funds you will raise via the levy being used and what voice will business have in determining how that is spent?
Sajid Javid: The broad principles, as we have set out, are that the levy will be raised as a cost to the payroll of a business, so it will be a percentage of payroll. We have not decided what that percentage is just yet. That money will then be ring‑fenced, so it will not be treated as general taxation, and it will be ring‑fenced in a way that the majority of those funds will be available to that company to spend on certified apprenticeships. Separately, but related to this, in the Enterprise Bill we are, for the first time, protecting the term “apprenticeship”. That can help raise its status and therefore its quality, so someone cannot just start something off and call it an apprenticeship. We need to better control what that is, in the same way we protect the term “degree”. It would have to go to certified apprenticeships.
The idea is that, where you have companies that already have an active apprenticeship programme, where they are using their own money today they can use these funds for that purpose, so there is no net new cost to that particular firm. Where you have a company that is either underinvesting in apprenticeships or not investing at all, it acts as an incentive for them to look again and see whether this is an area they need to invest in, because they now have these ring‑fenced funds they might be able to put to use.
Where you have a company that is not investing in apprenticeships and decides not to, still, despite the levy, those funds will be reallocated. Let us say they do not use them within a year. We have not decided what the cut‑off is yet, but, if they clearly have not used those funds and they are sitting there, they will be reallocated to other employers that are investing in apprenticeships. They could eventually get a top up. Even if they put in a pound, for example, of levy, they could end up having more buying power, because of the top‑up. Those are the broad principles.
You also touched on the employer’s role in this. It is hugely important to get this right that the employer groups and large employers need to be directly involved in the process of how this is set up and how it works. We have to be very careful that it is not some big, complex, bureaucratic monster; it has to be very simple and straightforward to understand. We have launched a consultation. We are working with employer groups and other stakeholders in getting this right. We also want to hear and are hearing from trade union groups and others who have a direct interest in this, to make sure this is not something the Government decide in a vacuum and that is it.
Lastly, we are also looking, as I mentioned earlier, at what other countries have done. Where we feel they have got it right, we can learn from that too, when we design our own levy.
Q10 Jo Stevens: You have a target of 3 million new apprenticeships. What is the rationale for that target?
Sajid Javid: The starting point is the skills gap. We still have a skills gap in this country. As I mentioned earlier, a number of employers would refer to that as one of their top two or three priorities. As a country, over many years, under successive Governments, we have not taken vocational training, particularly apprenticeships, seriously. There has been too much focus on HE. We should offer both opportunities to young people.
One thing that has certainly come out in conversations with employers—I have been Business Secretary for five months, but starting with the coalition Government—is that employers would welcome these kinds of training opportunities where they can offer a job, because an apprenticeship is a job linked to training. Many look to countries like Germany, Switzerland or even the US and see what they have managed to achieve. It directly goes to the higher levels of productivity in those other countries. That is why the Government have prioritised this.
In the last parliament, we wanted to double the number of apprenticeship starts, and the latest results, as of this morning, show that we overachieved and more than doubled them. That has clearly been a very strong outcome. In this parliament, there is nothing magical about the 3 million. It would be great if it could be more than 3 million, but we wanted to set an ambition that makes all parts of Government, working with business, work towards an even higher deliverable. If we look at the latest apprenticeship starts, I think it absolutely is achievable.
At the same time, it has to be about the quality as much as it is about the quantity. What I did not want to see is a focus on just the number itself. If it was less than that, you might just get lots of people doing one‑year apprenticeships, because a one‑year apprenticeship is one start; a five‑year apprenticeship is also one start. Clearly, one requires funding for a year; one requires funding for a much longer period. There is a bigger resource requirement when you focus on quality, and that, again, brings me back to the levy, because we had to come up with a way so that we could focus on all qualities of apprenticeships, but especially the higher‑quality apprenticeships. For example, degree apprenticeships are something I am very passionate about. I want to see big growth in that. It costs a lot of money, and I want to make sure there is a sustainable way to fund that. That is why we ended up with a levy.
Q11 Jo Stevens: I will come back to quality in a minute, but, going back to the targets, are you setting a target for higher‑level apprenticeships? There is just this 3 million target; it does not say whether there will be a target for higher‑level.
Sajid Javid: We have not set a target for higher‑level apprenticeships. Sometimes targets, generally, not talking about this particular one, can lead to the wrong kind of behaviour or be too much of a blunt instrument. I did not necessarily want to have targets within targets and then more targets, because it would make it more complex.
Q12 Jo Stevens: You do not have a specific rationale for the 3 million and you do not have target for higher‑level apprenticeships either. Have I understood that correctly?
Sajid Javid: No, you have not. We have a target for the 3 million.
Jo Stevens: I was talking about a rationale.
Sajid Javid: Yes, we have a rationale for it. Hopefully I have explained that. Going back to the quality, clearly we want to see an increase in quality, but there are different types of quality apprenticeships. In five years from now, there might be an apprenticeship we do not have today in terms of focus, but, if employers demand a certain skill they think can also be done by an apprenticeship—not just through a degree route, for example—we want to leave that flexibility. There will be a huge focus on both the quality of apprenticeships as well as the quantity. If your concern is, “Is it just about quantity? Is that the only thing the Government are going to focus on?”, that could not be further from the truth.
Q13 Jo Stevens: I do have concerns about that, because of what I have heard about apprenticeship starts so far, in terms of existing jobs being re‑badged as apprenticeships. That is why I am asking the question about whether the target is there and has a rationale. Also, can you assure the Committee that these 3 million new starts will not simply be re‑badged jobs?
Sajid Javid: Absolutely. These are new apprenticeships. As I mentioned, they have to qualify under the description and definition of an apprenticeship. That is why we want to protect the term. If anything, protecting the term, given the alternative of not protecting it, would actually make hitting the target harder. In terms of getting more young people to even think about doing apprenticeships, one of the issues we have faced for a long time, under successive Governments, is raising the status of an apprenticeship. Unfortunately, in some quarters, it is still seen as being second class to getting their degree. That is absolutely wrong. They are as valuable as a degree education. That is why, in terms of the quality, we need to get more people interested in the first place, thinking about it as an alternative to a degree. Part of that process is raising the status.
Q14 Chair: Secretary of State, do you have a target for apprenticeship completions?
Sajid Javid: We do not have a target for completions.
Q15 Chair: Is it not a key point, if we are raising skill levels in the economy, that the apprenticeship has actually been completed and, therefore, is really adding value to that firm and the productivity of our country? Is that something you should consider?
Sajid Javid: That is right, of course. There is no point in having starts if they are not going to be completed, but there is no evidence that there is a big drop‑off rate of apprenticeships. If there was evidence of that, there would be a concern about looking at completions as well as starts.
Chair: Completions are declining, and it is a case of making sure that you count not just the people who are starting the process but those who are realising their full potential, finishing the process and then really adding value.
Sajid Javid: Yes, absolutely.
Q16 Chair: Small firms are not going to be included as part of the apprenticeship levy, are they?
Sajid Javid: They will not be included.
Q17 Chair: Given that one of the structural weaknesses of the economy is that small and medium‑sized firms do not provide apprenticeships, what extra help can the Department give to that?
Sajid Javid: We are already working, through, for example, our business growth hubs and the National Apprenticeship Service itself, with not just with the small businesses directly themselves but often business bodies, business groups and local colleges. Part of it is to try to show more small businesses the benefits that apprenticeships can bring to them directly, and also making that a lot easier for them. What I have found, directly from speaking to many small businesses myself, is that many of them have a view that hiring an apprentice is a lot harder than it actually is. Often that is the block. Once they have actually started, many of them wonder why they did not do it earlier. We then try to get those employers to share their experiences with other employers, with their own federation, for example, if it is the Federation of Small Businesses.
That is ongoing work. You can always do more of that. Again, when a small business in particular starts looking at this, they will find that the burdens of taking on an apprentice are actually very little in terms of paperwork and stuff, and the rewards are huge.
Martin Donnelly: If I could add to that point, we are also finding that the larger employers are working more effectively with their supply chains and encouraging SMEs to share their apprenticeship systems—companies like Rolls‑Royce, British Aerospace and so on—to make sure the whole supply chain is benefiting from the up‑skilling that the Secretary of State has talked about.
Q18 Paul Blomfield: I wonder if I can ask a couple of questions around universities. As you will know, we are conducting an inquiry into quality assurance in universities, and that is partly in response to what is a very positive initiative from the Department to focus on teaching quality. We have a very strong university sector, but it is also very diverse. Are you confident that you will be able to develop metrics to measure quality that will adequately assess all of the different universities within the sector?
Sajid Javid: Yes, as long as we work with the university sector, and that is exactly what we are doing. For the reasons, first of all, that you have identified, we have had a Research Excellence Framework now for many years and it has helped that sector—sometimes with Government grants, through research councils and in other ways—to become a world leader in research. If you look at British universities in whatever league table or top 10, when it comes to research you will always see a big number of UK universities represented and punching far above our weight compared to other countries. That is something no one would put at risk.
When it comes to teaching, something similar can be done. We could have a bit more of a focus on teaching as well as research by some universities. Some do a great job; others could do with a bit more focus on teaching. Developing the TEF, the Teaching Excellence Framework, although clearly there will be measurables, has to be done with the sector. The sector has welcomed this initiative. I have had meetings with many representatives myself. We are in the process of designing this with them, but, as long as we work with the sector, agree on the kinds of measurements and do not make it overly complex, I think it can be done.
Q19 Paul Blomfield: You are probably right. Working with the sector is incredibly important. One of the concerns that the sector would have—and I am sure you would have as well—is that, if we get this wrong, it could damage the reputation of our universities, which are an incredibly important export earner. One of the concerns that the sector has is that, in order to avoid getting it wrong, we need to spend sufficient time doing it and making sure it is right. There is anxiety, you will know, amongst universities, that trying to get this in place by 2017 is overambitious. Are you willing to be flexible about that timeline in order to get this right?
Sajid Javid: We think 2017 is workable.
Q20 Paul Blomfield: But the sector itself does not. The sector itself has concerns over that, does it not?
Sajid Javid: Some people who have talked to us do have concerns about that, and that is understandable. It is a big change. I think everyone understands where we are trying to get to, and there is general support for that. I can perfectly understand that, when you have that kind of change, some people will be a bit nervous about it: “Are we rushing it? Are we giving it enough time?” I think 2017 is achievable, but, if that means we thought we were going to get it wrong and it was not going to quite work, we would not rush it. I would not want to say to the sector, “Look, do not worry. It is all flexible. 2017 will become 2018.” The priority is to get it right, and that will be our focus.
Q21 Paul Blomfield: So there is some flexibility about that timeline. That is helpful. I wonder if I could ask another question around student loans. As a Committee, we had a lot of engagement with your predecessor over the proportion of student debt that would not be repaid, the RAB charge, which initially was set at an ambition of 28% and is now being measured at 45%, the point at which the new system becomes unsustainable in many people’s views. Do you think the system is sustainable?
Sajid Javid: Yes, I do, and it is not just my view. In fact, the OECD—I am looking for their quote here—which as you know is the think tank for rich countries, have praised the student loans system in England. They said, and I quote, it is “one of the few countries to have figured out a sustainable approach to higher education finance”. You are right. You said the RAB charge is around 45%; I think that figure is correct, but it is sustainable. Of course, we will keep under constant review the different variables and thresholds in that system, in terms of how long a loan is, when repayments begin, what percentage it is.
However, the system itself, the way it is designed, has achieved its clear objective, which was to make sure that, when someone thinks about going to university, it is free at the point of entry, so it based only on merit and their ability and nothing else, so no one is prevented, for a financial reason, from going to university. Hugely important was, at the heart of the system, making sure we had a system that is not just sustainable but does not put off people from poorer backgrounds. If we look at what we have seen since that system has been in place, in 2009‑10, 13.6% of people going to university were from disadvantaged backgrounds; by 2014‑2015, it was 18.2%. It is the ambition of my Department, by the end of this parliament, that we raise that even further. In fact, our target is doubling the number from 2009‑2010 to around 27%. That is what I would like to see.
It is a very ambitious target. I think it can be achieved, but that shows how the system has worked. It is not just long‑term sustainable. There is no cap on the number of students who can go. If you look at Scotland, for example, they have a different system. Because it is a system that has to ration the amount of money that is available from the Scottish Government, in effect it probably leads to fewer Scottish students going to university than otherwise. I do not want such a cap in England and Wales. I want it to be sustainable and also not put off people from poor backgrounds.
Q22 Paul Blomfield: That is a very positive ambition. It is probably a discussion for another time, but I have some question over your assertion earlier that moving from maintenance grants to loans will not negate that ambition. Evidence from both the UK and the United States is that that will have a negative impact. I wonder if I could focus on the specific issue of when the system becomes unsustainable. In the last parliament, the Department was initially talking about a 28% RAB charge. That crept up incrementally to a 45% RAB charge. There was modelling of a 50%‑plus RAB charge. At what point do you think it becomes unsustainable?
Sajid Javid: As I referred to, I think 45% is a sustainable level. It has stuck around that number for some time now. That is the level where the whole system works together. There is no reason for me to think the RAB charge is going higher than 45%. Although it is higher than what was, before my time in the Department, originally calculated, it is a level that the Government can manage and manage in such a way that there is no need to have any kind of cap on student numbers.
I want to pick up on your point very slightly, if I may, on student grants to loans. One thing that was uppermost in my mind was not just the need to have something sustainable, given that we have removed any cap on student numbers, and my desire to get more people from disadvantaged backgrounds. I also wanted to see if there was a way for the Government to give more cash in hand, in terms of maintenance help, to poorer students. In an environment where, again, we are trying to find savings and efficiencies, it was going to be incredibly hard to keep doing that by topping up the maintenance grants.
The new system, grants for loans, is in the form of a loan—I accept that—but it does mean more cash in hand for students from the poorest backgrounds, up to almost £800 a year more than they would have got under the old grant system. That is just another reason why there is no reason for there to be a fall in the number of students that come from disadvantaged backgrounds as a result of that change. In fact, indeed, as I have just shared with you, my ambition is to see another dramatic increase in that.
Q23 Paul Blomfield: I would not want to pursue that line, although it is a very interesting discussion to have. I wonder if I could ask one last question on the RAB charge. A moment ago, you said you were keeping under review thresholds and interest rates. That clearly is one way of containing or even reducing the RAB charge. Many graduates feel quite sore that you have changed the repayment threshold, in conflict with the contract they thought they had. Do you have any intention of changing either the threshold or interest rates within the lifetime of this parliament?
Sajid Javid: All I can say is that the broad principle of how a loan is repaid is that there is a threshold, which is currently £21,000. You pay 9% above £21,000 and the loan lasts for 30 years. If you have not repaid it, it is no longer payable. The structures will stay the same. I cannot tell you here and now that any of the numbers I have just mentioned cannot change during the life of this parliament, but there are no current plans. It is something I do not think I can commit the Government to.
What is going to be uppermost in our mind in making these types of decisions and approaching them is making sure at all times that what we have set up as the thresholds and requirements are sustainable for the long term, that the RAB charge does not become out of control and also that, if we did not have a change, it would not in some way end up capping the number of students and ending up with some kind of rationing system, because that would be wrong. I still want to make sure we have a HE system where anyone who has the ability, regardless of their background, regardless of their income and family circumstances, as long as they have the ability, can apply to university and go.
Q24 Paul Blomfield: There may be further retrospective changes to the RAB charge and interest rates. You are not ruling that out.
Sajid Javid: We are not planning any retrospective changes.
Paul Blomfield: You are not ruling it out.
Sajid Javid: You said “over the lifetime of this parliament”. I do not think I can commit to that. Assuming I am in this job for the next five years, it is easier to make some commitment, but who knows what will happen? At this point, all I can say is that there are no plans for any retrospective changes.
Q25 Amanda Solloway: I would like to move on to exports, if I may. One of the things the Government have committed to in 2020 is reaching a £1 trillion target for exporting. I wondered how we were in terms of reaching that target, but also looking at factors that might influence that, such as productivity.
Sajid Javid: First of all, in terms of the target itself, it is still our ambition by 2020, but, frankly, it is hugely ambitious. To hit that target would require annual growth levels that, it is fair to say, we have never seen in this country in exports.
That does not mean to say that we should not be hugely ambitious for our companies and their exports. What are we doing about that? In the last parliament, despite exports increasing, especially to the larger growing economies—the big emerging economies: China and others—we lost market share. Compared to the likes of Germany, Italy and France, we have not done, frankly, as well as we should have. Early on in this new Government, we decided that we needed to take a fresh look at this and see what more we can do that perhaps we have not tried in the past.
That is why the Prime Minister asked to set up an export taskforce, which I chair. Members are other Cabinet Members, some who have a more direct involvement in exports, such as the Foreign Secretary and others. We are now currently working through a strategy. We will end up, certainly by the end of this year, with a plan about other initiatives we can take to really move the dial on exports.
A recent change that has already been made is that we have a new head of UKTI, UK Trade and Investment, our main promotion body for exports and inward investment. That is Catherine Raines, who was the head in China, where we saw a big positive change for British companies. She has now moved to London and is overseeing that and looking at how the strategy might change.
Q26 Amanda Solloway: I will come back to UKTI in a bit, if I may. You said you are not quite sure what the target will be now. Is it going to be quite far off that £1 trillion that was indicated? Within that, are we on target for reduction of the trade deficit as well, please?
Sajid Javid: I cannot tell you where it will be versus the target. Obviously, I want it to be as close as possible. There are so many variables. Some things, clearly, the Government can influence; a lot depends on the business sector itself; there are also exchange rates and things. It would not be wise for me to try to guess where, exactly, we might be.
In terms of the kind of things that can move the dial on this, one thing this export taskforce has already recognised is that there needs to be a whole‑of‑Government approach to exports. In the past, under successive Governments, it has been seen as the main duty of BIS and maybe the Treasury. I used the example of Defra earlier in food and drink exports. There are also defence exports; the Ministry of Defence needs to be involved in that. There are education and health exports.
In my own Department, for example, we have George Freeman, a Life Sciences Minister, who is a Minister both in my Department and in the Health Department. It allows us to use a unique, fabulous asset we have, the NHS, and see how that can help contribute as well. It is hugely important that we get all parts of Government involved in this.
The other thing we have also commissioned—and I do not have the full results of this yet—is that I wanted to bring in an outside consultant, therefore completely independent of Government, and get them to specifically look at other countries, the ones we compete with, the big exporters, Germany, France, Italy, the US and Japan, to see what they do that we are not doing and whether we can learn from that. For example, in Italy, and Germany for that matter, when you look at exports by SMEs, if we all defined SMEs the same way in each country, double the proportion of SMEs export compared to the UK. Why is that? I am not pretending I have every single answer to that—I do not—but we need to learn from what some of these countries are doing and see if that is the kind of thing we should adopt ourselves.
Q27 Amanda Solloway: You are absolutely right: SMEs are crucial. I wonder how we trigger or support them in looking at export markets. Have you thought about how we actively promote them exporting and getting more involved?
Sajid Javid: Which trigger do you mean?
Amanda Solloway: I mean for SMEs. As an example, how do we encourage them to export?
Sajid Javid: There can be a number of things. First of all, we can take a fresh look at the export guarantee programme we have through UKEF. Are we doing enough for SMEs in providing support for that, or is it the case that it has been heavily weighted towards the big, large companies, which are clearly the biggest users of it, and so therefore SMEs really have not been focused on it before? We are taking a fresh look at that, but that is one area.
When I talk about learning from other countries, in Italy—I am not saying we are definitely going to do this, but just to give you an example that sounds worth another look—one way they provide support to SMEs is that the Government will give a grant to hire someone for the first year in an SME of a certain size, as long as that individual is focused solely on boosting exports. The Italians all tell me that has made a difference, and I want to take a look at it. I am not afraid of pinching good ideas from other countries. We should always explore and be open minded.
Chair: Or other parties.
Sajid Javid: I will ignore the political point, Mr Chairman, you have just made
Q28 Amanda Solloway: I would like to come back to that in a bit when I talk about UKTI. From an EU perspective, do you think, at the minute, with no decision made, the uncertainty is impacting at all on our exports?
Sajid Javid: Did you refer to the EU there?
Amanda Solloway: Yes.
Sajid Javid: Your question is about the EU. No, there is no evidence of that at all. In fact, in my discussions with business groups, who clearly have a big interest in the EU referendum and that whole process, what they welcome is that the referendum will bring certainty. In other words, many of them would say that we have had uncertainty regarding the EU and our future relationship for many years. It is not something that has just been created by this Government. If nothing else, one way or another, the referendum will bring certainty, and business groups welcome that.
Q29 Amanda Solloway: Going back to UKTI, it has obviously had a role in the past, and clearly you have been looking at it and appointed a new CEO. What targets do you feel they should be looking at? How should they be changing what UKTI was doing in order to improve our export offer?
Sajid Javid: We do not have a final plan yet, because I want to wait for this independent work that is being done. You can talk to my colleagues in this task force. The kind of things, to give you an idea, that are being looked at—with, as I say, no final decision—are about asking ourselves whether UKTI is really focusing on what you might call the high‑value opportunities. For example, if UKTI is contacted by a British company that is producing widgets that, frankly, are not competitive in a global market and there is no comparative advantage in Britain trying to export those, because there are plenty of other countries that are producing them at half the price, is it right that UKTI spends time with that company, or is that time and those resources better spent on focusing on those areas where we have a clear comparative advantage and, either though technology, quality, branding or some other way, we can hope to boost exports? One area is resources: are they focused enough?
Also, linked to that, when it comes to focus, are the geographies. Frankly, if a British company wants to export to most countries in Europe or the US, for example, it is not that hard for them to do a bit of homework and find out how it is done. Especially in Europe, especially if it is a product in the single market, covered by the single market rules, it can actually be quite straightforward.
Should we really have lots of people advising people on how to export to Germany, for example, when we could take the same resources and focus them on China, for instance? Even at a 5% growth rate, which is expected to be China’s growth rate by many people this year, it is still one third of global growth, so it is a country we just cannot afford to ignore. Clearly, because of language and culture, there might be more barriers to exporting than there might be to another European country. It is about taking a fresh look at the resources within each geography and then also the different sectors it might focus on within the UK to make sure we are getting the biggest bang for the buck.
Q30 Amanda Solloway: You say you do not have any firm announcements yet. Do you have an idea of when that might be, perhaps six months or so?
Sajid Javid: The plan is before the end of this year.
Amanda Solloway: That is great.
Q31 Richard Fuller: Secretary of State, you come to your position with a track record of being strongly pro-free trade, pro-free markets and pro-enterprise. Boy, is that welcome in a Secretary of State!
Sajid Javid: Thank you.
Richard Fuller: I would like, therefore, to ask some questions about deregulation and disruptive business models, if I may. The Department has some strong targets in terms of deregulation. The target is £10 billion. Can you give the Committee some sense of how you think that target will be achieved?
Sajid Javid: To go back, I started talking about this earlier on, Mr Chairman, when we were talking about productivity. One of the ways to boost productivity is to have an even more competitive economy. At the heart of having a more competitive economy is more deregulation. One of the problems we have had under successive Governments is that we pass rules and regulations, and they might have been perfectly relevant at the time, but then we forget about them and they are still there for businesses to observe. Obviously it is going to cost them to do that, getting in the way of business and job creation. Politics has moved on and it is not in our minds, but businesses have to deal with it every day.
Deregulation, when we do that, is like a tax cut for a business; it just does not cost the Government anything. That is why it is at the heart of what we are trying to deliver. How are we trying to meet that target? I have gone out and set a target, saying that we want to reduce the cost to business by £10 billion over this parliament. We have already started that process with, for example, the Enterprise Bill. That is just part of it; it is not the end of it.
I am fully cognisant, though, that, because we did a lot of this in the last parliament, under the coalition Government, you could say that a lot of the low‑hanging fruit has been picked. It is going to become harder. There are initiatives now afoot that recognise that. For example, in the Enterprise Bill, we have made it clear that, for the first time, there will be a requirement on independent regulators to have a much more robust approach to regulation, or rather deregulation. Within Government today, within Whitehall, because of policies put in place by the coalition Government, we have rules such as the “one in, two out” rule; we have deregulation targets, Ministry by Ministry; and we have what is called collectively the red tape challenge, which has actually worked to get Departments focused on reducing regulation.
We do not have anything like that for independent regulators. I am not saying it should be exactly the same way, but there needs to be a discipline. A regulator should rightly be absolutely independent of Government where they are set up that way, but they should be forced to think about the costs of regulation. They should really be more transparent in the costs of the rules they are publishing or considering, and also think, “If we are going to introduce a new rule, are there other rules on our rulebook that we can get rid of?” That is one way.
There are also measures in the Enterprise Bill that will help to reduce regulation: for example, the extension of what is called primary authority. Again, this all goes towards meeting that target.
Q32 Richard Fuller: Could I follow up on one of those points with Mr Donnelly? This is about the extension of these rules and the regulators. Now, we often hear in Whitehall about turf warfare between different Departments, and the Secretary of State has already talked about the additional issue of independence of Government. In your experience, do you see this as being something that can actually be effective? What problems can you foresee might occur as we try to extend the reach of this deregulation to our regulatory authorities?
Martin Donnelly: Yes, I do see this as being effective, because there is a very clear and consistent message, not just from our Secretary of State in BIS but across Government. That mean that all the regulators are working on the same basis, and it gives us something to pursue in dialogue with them. It will, I believe, produce significant results over time, because we have changed the parameters of the decision‑making process.
If I could add to that, a good example is, as the Secretary of State said, the red tape challenge process. That has really moved the dial in a way we were not able to do before, by taking independent challenge to a range of sectors that affect different Departments but that then pull them together. We in BIS work on that with the Cabinet Office. There is another round of reviews about to take place on mineral extraction, waste, agriculture, energy, care homes and so on. These will produce real results, and they feed back into what we hear from business about the perceived burden of regulation going down.
Q33 Richard Fuller: Presuming you stay in position for the full term of the parliament, should we anticipate that we will be able to say in five years that that £10 billion reduction target has been achieved? In about five years, will we be able to say, “We anticipate that the £10 billion will be achieved in the future”? That is just to your point that a lot of the low‑hanging fruit has already been accomplished. What timeframe might we expect?
Sajid Javid: It is more the latter.
Richard Fuller: We will have identified it, rather than achieved it.
Sajid Javid: Yes.
Q34 Richard Fuller: Can I move on to disruptive business models? A disruptive business model is usually, but not always, supported by technology. You have an existing business model and then someone comes in with a bright new way of doing things. What is your general view about such disruptive business models?
Sajid Javid: We are a Department that rightly champions innovation, enterprise, dynamism and new ideas. That goes hand in hand with supporting new technologies. In fact, in my old role, when I was the Culture Secretary, I had direct responsibility for our technology infrastructure, broadband and so forth. It showed me that not enough British companies are necessarily taking advantage of technology and the opportunities it provides, how it can boost productivity and ultimately benefit consumers.
Where you have seen successful disruptive technology, ultimately the real test is: is it making a market more competitive than otherwise? That has to boost opportunity and it has to be good for consumers in so many ways, in terms of choice and prices. Is it creating new markets and, alongside that, new jobs? I am a big fan of new technology, including disruptive technology.
Q35 Richard Fuller: We have a pending example at the moment, which is hotly debated. It is about Uber, which is the application for people to hire taxis or private hire vehicles, however you wish to call them. That has certain benefits: speed of pickup; it can provide the consumer with a lower price for their trip; it provides the consumer with more information about their driver or gives them a choice of car type; and they do not have to use cash in the vehicle. From a consumer point of view, it looks a great option for them to have, but it appears that regulatory challenges may be put in place. Do you have any views on this?
Sajid Javid: You are probably thinking—correct me if I am wrong—about the review TfL, Transport for London, is doing at the moment.
Richard Fuller: Yes, in part.
Sajid Javid: First of all, TfL is perfectly within its rights to review transport‑related issues in London, so I welcome its review. If it thinks it is an important issue, I welcome that. What will be a big test is whether the review comes out on the side of ordinary Londoners and consumers, who want choice and value competition? That will be something a lot of people will be looking at. From my own point of view—I am not going to prejudge this review; it is TfL’s review—I am personally not interested in heavy‑handed regulation here. I want to make sure consumers are put first in any assessment of these types of services.
Q36 Richard Fuller: That is good to hear, particularly in the context of the response Mr Donnelly has just given about the potential impact on deregulation of getting regulatory bodies in and coming to terms with this. TfL is a regulatory body, and sometimes you get capture of regulatory bodies by the producer interests. It is very welcome to hear that the Business Department will look and see what happens.
You may also be aware that the Law Commission itself looked at the difference between private hire and hackney carriages, and the 19th century legislation we have. It came down on the side of maintaining a difference but changing the vague definition of that difference from plying for hire to having a vehicle available there and then. At the moment, the people who wish to restrict Uber, the regulation that is out for consultation, want to put a five‑minute required delay on anyone who wishes to use Uber. Would you say that the phrase “there and then” would be a substantially lower amount of time than five minutes?
Sajid Javid: Actually, the proposals go even further than that. I think there is a proposal—I might be wrong—by TfL that you should be able to book a private hire vehicle seven days in advance and you should also not be able to work through more than one app of that type. If these things actually went ahead, there are many people who think it would have a dramatically detrimental impact on consumers in London, choice for them and prices. TfL rightly needs to keep that uppermost in its mind.
You referred to the Law Commission work. I have only recently become aware of that, but I have asked my officials to dig it up and see if there is anything we can learn from it.
Q37 Richard Fuller: Very specifically, Secretary of State, if TfL upholds those regulations, about which you have expressed some scepticism, will the Department step in to see how it can look for something that is more deregulatory and pro‑consumer?
Sajid Javid: Hopefully I have made my thoughts on this clear. As a Government, we welcome innovation; we welcome disruptive technology. I would not want to see anything done to jeopardise our status as a country that welcomes investment and jobs and puts consumers first.
Q38 Craig Tracey: Secretary of State, obviously deregulation is a target, which we applaud, but there are industries where regulation does have to apply. Talking to businesses, it seems that, in Britain, the cost of regulation is disproportionate to many other countries. To give you an example, in the insurance industry, it is four times more expensive to be regulated in the UK than any other major market. In Germany, who are under the same EU directive as we are—and we talk about their productivity—the cost to their insurance businesses is 0% for regulation. When we are talking about productivity and regulation, should there be a look at how that is funded? My view is that there is a disproportionate effect on small business and individuals who are self‑employed, who do not have the manpower to have a full‑time compliance officer, etc. How can the Department look at that and look at the costings?
Sajid Javid: As part of our deregulation strategy, we look at the direct cost of regulation. As you will know, in some industries, you pay directly for the day‑to‑day running costs of the regulator, and then, on top of that, there is the actual cost of the regulations themselves and compliance with them. You mentioned one example that it might require compliance officers or getting legal or other professional advice.
Our strategy is quite simple, in a way: to cut those regulations, reduce them and get clearer guidelines, even if the regulation itself does not change. Often, regulation can be one piece of A4 and the guidelines can be 20 pieces of A4, and it is sometimes still unclear what can and cannot be done. The objective is less regulation, but to tackle that in many ways, looking at the guidelines, the regulations themselves, having sunset clauses. Where we do introduce regulation, good practice has been, under the coalition, and it will continue, to, wherever you can, put a sunset clause in place so, say after five years or something, it would have to be renewed or it disappears. These kinds of disciplines help.
I will touch on one other area that is really important when it comes to regulation and the costs businesses face, and that is EU regulation. Ultimately, we have a good degree of control over UK legislation that has come from the UK Parliament or UK regulators. As you know and as we have touched on a bit, a lot of regulation comes directly from the EU. That might be in the form of an EU regulation, through a directive that we transpose or in some other way. We have no direct control over that. Part of the change we want to see from the EU, in terms of building a more competitive single market, not just for us but for all 28 members, is a much more disciplined approach to regulation.
For example, the EU does not have an independent body that looks at the cost of regulation, like we do. I think it is good practice. Some other countries in Europe have it, but the EU does not have that. When it comes up with a new regulation, the cost to business should be worked out by an independent body that is funded by the EU but is truly and genuinely independent, so we know what the real costs are and businesses and other countries can have much more faith in the number.
It does not have the equivalent of something like the “one in, two out” rule. I cannot see any reason why the EU could not have that kind of discipline. I have sometimes talked publically about better regulation from the EU. These are the kinds of things we want to see changed.
Q39 Craig Tracey: I have a quick point on that, then. We often refer to Germany’s productivity. If they had the same clauses in there as we have in this country, would that bring their productivity down? Are we aiming at something that is an artificial level?
Sajid Javid: Could you just repeat that?
Craig Tracey: You are talking about Europe. Like I say, for example in the insurance industry, they have zero cost for their regulation, which obviously increases their productivity. If Europe comes into line and we have these uniform rules, is that then going to decrease the productivity of countries like Germany?
Sajid Javid: I want to see a level playing‑field by deregulation, not by seeing some kind of increase in regulation for other European countries. That would clearly be the wrong way to go. In other words, I do not want to see anyone’s productivity fall. Our productivity challenge is: what do we do—the kinds of things we have been talking about today—to raise our productivity? One of those things we must do more of is deregulate.
Q40 Kelly Tolhurst: Secretary of State, to follow on around deregulation and specifically EU regulation, while I welcome your Department’s position to try to do as much deregulation as we possibly can, it is true that a lot of regulation comes from Europe that we, as a country, have to implement. My own experience has been that, in some cases, I have been at a disadvantage to some of my European neighbours because of the way that we have necessarily implemented regulation coming out of Europe in this country. What I would like to know is: have we got any plans around benchmarking what we are delivering in the UK when we are dealing with new European regulation to how other European countries are actually delivering that regulation in their home states?
Sajid Javid: Yes. What you might also be thinking of, Ms Tolhurst, is what people often refer to as “gold‑plating”. You have a directive that might be two or three pages, but somehow, when it enters UK law, it becomes 40 pages. People rightly ask, “How can that just be a transposition of something that came from the EU?”
When the coalition was dealing with the issue you have just raised, in 2011 a set of principles was introduced. They are called the Guiding Principles for EU Legislation. They are still in place and they have worked to a large extent. Every Government Department has to follow these principles. They effectively set out how you have the minimum amount of legislation being transposed, so that it is not gold‑plated in any way. Those principles still exist. What we are doing now, and what I want to make sure we do, is, now it has been a few years since those principles have been in place, to go back and make sure they work in the way we intended them to work and that things have not somehow slipped, or see if there is a way to improve it.
Q41 Chris White: I will talk a bit about industry and manufacturing, if I may. Despite the economic circumstances or climate we find ourselves in, we are still seeing positive momentum, which is obviously important for inward investment. We have had good things like the Catapult centres and we can see the success of the automotive sector, but the most important thing is continuity. Continuity is all, not least in terms of investment. Could you comment a little about your views on industrial approach/industrial strategy and what those two mean to you?
Sajid Javid: Yes. They mean essentially the same thing, which is this. This Department works closely with industry, either individual companies or their representatives, whether that is the trade bodies or sector councils, listening very carefully to the challenges and issues they say they face—we talked earlier about skills; we talked about deregulation, research and investment—and seeing how the Government can respond to them.
Obviously, there will be things that industry will ask for and the Government cannot deliver. Either it is not value for money for the taxpayer, or it is not feasible for some other reason. However, it is very important to have a constant and regular dialogue, not just with me but with the Ministers in my team, the key civil servants and others, to make sure we are always listening and responding the best we can. That approach of listening to businesses, the way we do that and how often we do that was well established over the coalition Government, and I give my predecessor credit for how he set up the structures around that. That has not changed.
Q42 Chris White: I am sure you are not one for bureaucracy, but will we see a document that can be referred to with a heading “industrial approach”, so we can measure how you have developed?
Sajid Javid: No, I am not planning one. I will explain that a bit more. One thing that did happen under my predecessor is, when it came to what he called “industrial strategy”, there were a number of industries where a document was set out and it was said, “This is the strategy for X, Y, Z industry.” If I am not mistaken, there were 11 industries. I later became the Culture Secretary, and one of the responsibilities that I took very seriously was: what can we do to promote our world‑leading creative industry sector? That was not one of those 11 strategies. I remember hearing from that sector, the creative sector, “Why are we not one of the Government’s formal strategies? You do not care about us.”
Of course, that was nonsense. The Government took all of these industries very seriously. I do not want to be in a position where it looks like the Government have favourites and therefore we do not care about other industries. Ultimately, for any industry to succeed, of course Government can help, whether it is through skills or other ways of investment, but it will only stand on its own two feet and be successful if it has support from the market, and that means consumers. The market must ultimately decide whether an industry can succeed, and we will help it in every way we can, but I do not want to give the impression—sometimes perceptions, even though they are not reality, can make a difference—that the Government only back certain industries and the others are not important.
Q43 Chris White: I accept the point you make about not having favourites. That is reasonable. However, the point I am trying to get across—and I would still appreciate your view on this—is how significant you see manufacturing or industry as in terms of rebalancing the economy. Are you inspired by phrases such as “march of the makers” and—dare I say it—that a new Britain would need to be forged in the white heat of a scientific revolution? How do we flesh these out so that industry can see this level of continuity?
Sajid Javid: We totally agree on this. It is hugely important that, in rebalancing our economy, we recognise manufacturing, whatever it is. You mentioned automobiles, in which we are, by global standards, today one of the world leaders. Some reports recently suggested that there is higher productivity in our auto sector than there is in Germany at the moment. In fact, there was a report that came out from SMMT, the industry body for that particular industry, which said that they are now on a trajectory to hit 2 million cars being produced in the UK by 2020, so by the end of this parliament, which would be a record high for the United Kingdom.
That does inspire me a lot, because we can take some of the lessons from an industry like that, which has risen up from a time, even five to 10 years ago, when people would not have predicted that it would be doing so well as it today, and apply them to other manufacturing sectors. Rebalancing is not just regional rebalancing. Of course, we have heard a lot about the northern powerhouse and the Midlands engine, but it is also about making sure there is a much better balance between services and manufacturing. It is a priority for the Department and we will continue to support that in every way we can.
You mentioned science, for example. It is a commitment of my Department that I want to see, between 2015 and 2021, a big increase in the science capital budget. The target is £6.9 billion in science capital spending. Compared to the previous six years, it is an increase of about £1.4 billion, a 25% increase. That is at a time when, as we touched on earlier, we are facing demands for savings and spending constraints. I hope that helps demonstrate where the priorities are, because that science investment is a good example of how we can turbocharge our manufacturing industries.
Q44 Chair: Secretary of State, I want to clarify certain things in my own head, please. Are you suggesting that the 11 sector strategies the previous coalition Government brought in play, in terms of the Automotive Council, the Aerospace Growth Partnership, will be allowed, under your leadership, to wither on the vine because you do not want to look like you are favouring certain sectors at the expense of others? Are those 11 sectors going to continue to have active Government support? Will the Construction Leadership Council continue and thrive? Will the Professional and Business Services Industry Council be given a boost? What is your approach to these bodies that have been put in place by the coalition Government?
Sajid Javid: There were a number of questions there. If I said a yes or a no, it would not be clear to which one I was answering. The suggestion, if anyone is suggesting that we are not going to take those seriously, is absolutely wrong. They remain hugely important and as important as they were before.
The point I was making earlier to Mr White was slightly different, saying it is not just those 11. No one should conclude that it is only 11 and the Government do not care about other industries. As far as those 11 are concerned—aerospace, pharmaceuticals, automotive—those strategies remain hugely important. In fact, I want to see them updated, because those strategies were put in place a number of years ago now, and the industries themselves will be the first to admit there might be things they want to now change about that. Some targets might have been hit; there might be some priorities. We are already discussing with the various sector councils and others what more—we have already talked about apprenticeships and degree apprenticeships—we can do to support these industries and their growth.
Q45 Chair: You mentioned the “northern powerhouse”. You will be aware of the tragedy of SSI.
Sajid Javid: Of course, yes.
Chair: That will have a knock‑on effect across the UK steel industry and the manufacturing supply chain. You have mentioned learning lessons from Italy. Italy renationalised a certain plant just for a particular time period in order to maintain that capacity and future competitiveness. Why do we not do the same?
Sajid Javid: I am glad you have raised this. First of all, what has happened with SSI is tragic for the workers. It is tragic for the whole local community, but especially for the workers and their families, who have been directly impacted. No one could underestimate the difficulties they would be going through. That is why, in terms of Government response, one of the key parts has been what support we can provide those workers in terms of re‑training, help and investment in the local community. If you want to talk about that, we can talk about that later, but that is hugely important.
You referred to Italy and its steel industry. You are referring to an instance where people report that the Government put money in, and it was not classed as state aid and therefore helped the plant. I am afraid there are a lot of myths around about other countries and what they have and have not done. When it comes to EU state‑aid rules, they are quite clear about what you can do for any industry. In terms of SSI, the advice we received was crystal clear that, if the Government put money in directly to save the steel plant, it would violate state‑aid rules, we would be infracted and there would be a much bigger cost to the UK taxpayer, and in fact possibly to the UK economy.
The SSI situation is then further complicated by the market dynamics of the steel industry. It is a fact that the price of slab steel has fallen by more than half in the last 12 months. In fact, since the Redcar plant was invested in by the parent company SSI in 2012, it has not made a profit in any single year. It racked up losses, many of them covered by Thai banks. Clearly, that was not sustainable for them for the long term, but, once the price of steel halved, it was not therefore surprising when the official receiver said they could not find a commercial buyer for either the plant or parts of the plant.
What has happened is tragic, and the Government should rightly look at everything it can possibly do, obviously within the law, but also recognise the things it cannot do. One thing we cannot do is change the world price of steel. The overcapacity in the steel market is exacerbated, by the way, by exchange rates in both directions. The rouble has fallen a lot and there is a lot of Russian steel around, and there has been a small devaluation in the Chinese RMB. The end result is that currently it is estimated that there is 300 million tonnes of overcapacity this year in the steel market. To put that in comparison, total UK production is less than 20 million. That is the market as it is today. We have to recognise reality. The most important thing in terms of help—you linked it to the northern powerhouse—is, first of all, making sure the affected workers get every kind of help they can, but also that we do even more to create more jobs in the north, especially in the north‑east. There have been some recent announcements, whether it is Honda, Nissan or others.
Chair: It is Hitachi.
Sajid Javid: Sorry, Hitachi in rail. There will be more, I hope. We will keep trying to get more jobs into that area and also to help those workers in every way we can.
Q46 Peter Kyle: Thank you, Secretary of State and Mr Donnelly, for being here. It is greatly appreciated. I am going to go from the macro to the micro now. I am going to invite you to share your views with us about the role and importance that self‑employed people have in our economy, both our economy as a whole but also the fabric of our commercial landscape.
Sajid Javid: We have seen a big rise in the number of self‑employed people and self‑employed businesses. I grew up in a family where my parents were self‑employed. With that experience, I can say I know both the good side of that, in terms of being your own boss and running your own business, but also the challenging bits, in terms of how the family mood can change with the day’s takings. I am and always have been a big supporter of that, and I would like to make it even easier—I think we have done this to some extent in the coalition Government, but there is more to do—for people to start own businesses and to take on people as they grow. That is one reason we, jointly with DWP, have launched a review of self‑employment for more disadvantaged groups and others, to see what more we can do to help people start their own businesses.
Q47 Peter Kyle: It is very clear that, both personally and as a policymaker, you value the role that self‑employed people play in the economy. 4.5 million people are self‑employed; 15% of our workforce is self‑employed. Are you not therefore embarrassed that the Productivity Plan does not make one single reference to self‑employment?
Sajid Javid: There are two major parts to the long‑term challenge of productivity. One, as it talks about, is long‑term investment in things like infrastructure; then it talks about dynamic economy. The self‑employment bit is really part of what I think is a dynamic economy. It is the most detailed Productivity Plan that any British Government have ever published, and therefore it goes into quite a bit of information about the kind of thing—
Q48 Peter Kyle: If it is the most detailed plan that has ever been published and one of our expert witnesses yesterday said it was a “worthy list”, why not therefore mention the fact there are 4.5 million self‑employed people who have specific productivity challenges?
Sajid Javid: It is captured in the parts of the plan—I apologise; I do not have it with me now—that talk about building a competitive economy and promoting enterprise, and therefore one of the objectives being an increase in not just productivity but employment. It is captured in all that. If I gave that plan to someone and said, “Can you look for words and phrases that the Government have not mentioned in here?”, I am sure you could come up with even more.
Chair: Industrial strategy is one.
Sajid Javid: There you go. You can come up with quite a few.
Peter Kyle: I am sure you would not say “self‑employment” was a worthless phrase.
Sajid Javid: If you agree with overall objective that we, as a country, do need to focus on productivity, and I know you certainly agree with me about the importance of self‑employment, then the question really is: what is it that we can do as Government, not just my Department but other parts of Government, to help boost self‑employment even further?
Q49 Peter Kyle: Clearly, there are productivity issues within the self‑employed sector. Average wages and income for the self‑employed have fallen 22% since 2008. Pension investment by people who are self‑employed has fallen every year for the last five years. There are very clearly productivity challenges for the self‑employed, yet they play a very key role in our economy. Clearly you are not going to say that it was an omission not to mention it within the Productivity Plan. Can I invite you, therefore, to talk about what you, Secretary of State, and your Department are doing to boost productivity within the self‑employed sector and support people who are self‑employed?
Sajid Javid: First of all, I am the first to admit there is more we can do. I have just talked about this review that has already started. How do we identify that? In fact, I believe it was a commitment in our manifesto, the Conservative manifesto, to see a big increase in self‑employment and business start‑ups more generally. I started this session by talking about—I do not have the full breakdown with me, I am afraid—the fact we have reached the number of 5.4 million private businesses in Britain, and many of those will be new businesses people are starting themselves, as self‑employed people.
We are having good growth, but, in terms of what more we can do, we also have to listen to what self‑employed people say themselves, or their representatives. There are issues around whether the tax system is simple enough or whether it leads to too many compliance costs and compliance burdens. Pensions are an issue.
Q50 Peter Kyle: The question specifically was: what is your Department doing to support people who are self‑employed?
Sajid Javid: One example I can give you is that, two or three years ago, we helped create the Start Up Loans company. Most people who want to start their own company will need financing. Access to financing can be tough, especially in the wake of the financial crisis. Since we have started that initiative, through that company, the Government have helped provide over 32,000 loans to people who are all self‑employed. That represents £170 million of lending. That is a direct example of how the Government have made a difference. My intention is to more than double that number of 32,000 over the course of this parliament, and also to see whether these loans can be added on, if there is something more we can do that goes beyond loans.
We have growth hubs around the country, business advice that is provided. A lot of that help goes to self‑employed people. We talked earlier about UKTI and the kind of help it provides. They have an initiative—they have had it in place for a while—that tries to reach out more to those who are self‑employed who would not naturally even know that UKTI exists. How do we get that message out so they know who they can call and they can meet their adviser?
Lastly, on apprenticeships, as well, many people who are self‑employed might just be that one individual. It often is, certainly at the start. However, as those companies grow, it is good if we can work with them to build on those skills. There are a lot of initiatives in train, but I am the first to say that, actually, more can be done. Ultimately, some of these self‑employed companies will go on to be much, much bigger, employ lots of people, give lots of opportunities and lead to that dynamic economy and productivity.
Peter Kyle: That is why I believe it should be mentioned in terms of productivity. There is a huge potential there for growth, for contribution to our productivity as a nation.
Chair: Peter, we are very close to the end.
Peter Kyle: Can I ask one more?
Chair: Yes, if it is 10 words.
Q51 Peter Kyle: This is about power. I have spoken to a lot of self‑employed people, and they often feel they are overlooked and ignored by policymakers and representatives, because they are 4.5 million, whereas the FTSE 100 is 100. I suspect, if a FTSE 100 chief executive were to leave a message for you, you would return the call within a day.
Chair: That was more than 10 words, Peter.
Peter Kyle: For someone who is self‑employed, you would not. How can you give more power to people who are self‑employed?
Sajid Javid: One way would be that, when we have a review and we set a group of people up, independent of Ministers, they then have the time and can make the effort to go and reach out, not just wait for people to come to them. Your example is people coming to me. That might sometimes be too late, or when it is an emergency situation. I want to get to them beforehand, so it good to have more people involved, not just the Ministers themselves, so we can actually have our own ambassadors going out and talking to people, listening and then reacting in terms of policy.
Chair: Secretary of State, Mr Donnelly, thank you very much for your time. It is greatly appreciated. Secretary of State, can I thank you, on behalf of the Committee, for your open and professional approach—if not strategy? Could I leave you with one request, on behalf of the Committee? We are very keen to help you succeed. We want to see you achieve 3 million apprenticeships. We want to see you and the country achieve £1 trillion worth of exports. We want to hold your feet to the fire and have the information to scrutinise you closely on that. Mr Donnelly, it is probably a question for you, but, if you can think about the metrics and the information that will allow us to challenge you, that would be very helpful. Thank you very much for your time. It is greatly appreciated.
Sajid Javid: Thank you, Mr Chairman.
Oral evidence: The Work of the Department, HC 500 25