Select Committee on Agriculture Minutes of Evidence



Examination of witnesses (Questions 92 - 119)

WEDNESDAY 13 DECEMBER 2000

RT HON BARONESS HAYMAN and DR DAVID SHANNON

Chairman

  92. Minister, welcome again, another recidivist. We are sorry to have kept you waiting but we will try to be reasonably brisk. As you know we are looking at this a second time. When were you first aware of how serious the problems were that HRI was facing?
  (Baroness Hayman) I will check the dates. I suppose it was really about a year ago, December last year, that the problems really emerged with full clarity. There were fairly extensive discussions between officials and HRI at the end of last year. Then officials, including officials from the finance department and the Acting Permanent Secretary, who was Richard Carden at the time, were drawn into more detail of the discussions. Ministers were kept informed at that time and ministerial agreement to provide funds to underwrite the restructuring plans came forward in July. Approval to proceed was given in early August and that was very much after we had seen the impact of the SR2000 announcement. David Shannon is with me and he is the Chief Scientist at MAFF.

  93. Who produced the restructuring plan? Did they produce it or did you produce it? Was it produced between them and officials? There is a slight fuzziness about all this at the moment, can you help?
  (Baroness Hayman) My understanding is quite clearly that they produced the restructuring plan but it was not that they produced something completely fully formed and defined. They had obviously looked at options and they kept officials at MAFF aware of the options that were being assessed.

  94. There was a MAFF input into that process?
  (Baroness Hayman) Yes.
  (Dr Shannon) There was a MAFF input into the process in so far as any restructuring plan was going, obviously, to involve expenditure of significant sums of money. If you like, the earlier discussions were about the feasibility of sums of money becoming available. That was not obvious at the beginning, that there were going to be the sums of money produced for the plan.

  95. When the plans finally emerged, were there any elements in the plans which would not have been there without the MAFF input or were there elements which were there which were not there as a result of the MAFF input? How do you quantify the geometry of this?
  (Dr Shannon) The sort of questions that officials like myself were asking were is this necessary; will this plan provide a long-term solution to the problems that HRI might be facing? We talked through a number of the plans but the plans were essentially HRI plans. We did question a number of elements: was Stockbridge House the right site to lose; why Stockbridge House and so on.
  (Baroness Hayman) Personally I find it very difficult with a non departmental public body to assess where the line is drawn between meddling in the proper responsibilities of the board and the senior management and having a proper strategic overview of an organisation of which you are the sponsoring body. I do not think ministers are there to second guess the people who are involved day to day in the running of that organisation.

  96. You were conscious, nonetheless, there had been a series of restructurings here?
  (Baroness Hayman) Yes.

  97. £60 million of public money had been committed to restructuring. You were being asked to invest another £4.5 million in restructuring.
  (Baroness Hayman) Yes.

  98. You must have felt "We had better get it right this time. This sequence cannot continue".
  (Baroness Hayman) Yes.

  99. That must have accounted for some of the time it took to make sure that this thing was airborne?
  (Baroness Hayman) Absolutely. I think the role there is asking the questions and probing and satisfying yourself that other options have been properly explored and assessed and making sure that you have the proper financial advice on whether these plans look robust and making sure you have the scientific advice as to whether the scientific aims of MAFF will be not compromised by what is being proposed. I think it is very much testing those assumptions and underlying structures rather than trying to superimpose your own solutions ab initio.

  100. You did lay down, did you not, a requirement in the sense that when restructuring was endorsed MAFF approved it on a specific basis and the specific basis was that it should maintain and improve its R&D work for industry, Government and customers and that the necessary cost reductions had to be properly managed. Are you satisfied now that HRI will be able to carry out the horticultural research and development and transfer the results to the UK horticulture industry?
  (Baroness Hayman) I think I am satisfied that the plan which has been put forward is the appropriate plan to see us through and lay the foundations for the long term. I am very conscious that we have both the scientific assessment coming up next year and we have a quinquennial review coming up.

  101. Yes.
  (Baroness Hayman) I do not think it would be sensible, given the experience that there has been restructuring done in the past, and given the changes that are going on, to say that this is forever and a day. I think it is robust and fit for purpose at the moment but I think it is appropriate that we have a rigorous quinquennial review that has been informed by the scientific assessment next year.

  Chairman: Since he has been jogging this morning Mr Jack is robust and fit for questions.

Mr Jack

  102. Minister, you will probably have noticed from our previous report and indeed the information from HRI that some of the problems they have encountered were not just about the way they carried out the scientific research but effectively the failure of the their business plan, HortiTech Enterprises, to deliver the necessary cash flows. Could you tell us what examination you have made now of revised plans for cash generation; what parts of those plans impressed you and what steps did you take to check the robustness of the business model now presented?
  (Baroness Hayman) As I said, there was the involvement on the robustness of the financial planning which was referred within MAFF to financial colleagues for their assessment. I would prefer to rely on their expertise.

  103. What did they tell you that impressed you about the recovery plan in terms of generating income?
  (Baroness Hayman) I suppose they gave us a general rather than a specific assurance. Perhaps David would like to add to that. It was a general assurance. I have certainly discussed, both with the Chairman and the Chief Executive, the lessons which have been learnt from HortiTech and the importance for the future of making sure that they do not over-estimate. I believe they have not put into their business planning assumptions about growth in commercial income because I think there are important lessons that they have to learn.

  104. What I am striving for, you are going to invest another £4Ö million of public money and I have not heard one specific example about something in the recovery plan. Your contribution is effectively going to remain level or possibly decline. The work remains to be done. The financial gap has got to be filled by something. Did you think because this was a business plan, a commercial plan, which underpinned this recovery programme it was worth taking any outside advice or was it a nice and cosy enclave in MAFF and you thought it would be all right?
  (Baroness Hayman) Well I do not think there was specific external advice.
  (Dr Shannon) No.
  (Baroness Hayman) I do not think it was that cosy. I think there were some fairly tough question sessions. I think there are two elements here. There is the business plan about income and the work that will come in to the organisation but there is equally the fact that despite the restructurings that have gone on in the past, this was an organisation working across several sites. I think there was some evidence that the methods of organisation and management were not those that produced the most cost effective running.

  105. I think we discovered that when we did our last report. I will give you one last chance. Can you cite anything specifically that you can tell me about the income generation plans of HRI which particularly impressed you? What programmes, projects, prospects made you think this was a plan which was going to deliver?
  (Baroness Hayman) No, I cannot give you a specific there because we were talking about the general plan which dealt both with proposals for generating income in the future but also for maintaining the capacity to do all the work that had been done before with less staff and on less sites and with a confidence in the chairmanship and the chief executive to carry that through and the belief that the necessary and painful lessons of the past had been and were being learnt.

  106. All right. If you cannot tell us about what impressed you—
  (Dr Shannon) Could I just comment a little bit on that. What was important, I think, from my point of view was that the restructuring was sufficient so that HRI was not going to be up against the ceiling right from the word go. In other words this is quite a major restructuring which puts it into a position to live with a greater range of levels of income than had been the case previously. It has been very much up against the ceiling, requiring to achieve certain incomes to balance the books. It will have a bit more flexibility under the new plan. I have listened to the exciting areas that have been talked about in relation to plant biotechnology and so on and these are very exciting. There are significant sums of money available in those areas. Of course it is a matter of experience whether those sums will be delivered to HRI because there is clearly significant competition in these areas. There are exciting plans for additional income but, of course, they have yet to be realised.

  107. What sanctions have you put on the management if they do not achieve the plan?
  (Dr Shannon) They need to come forward with a further corporate plan as a result of this restructuring, and we will then look at it in the light of that.

  108. Are you going to put sanctions and performance measures in? You are investing £4.5 million worth of public money—I would like to ask one question about how you are going to get that back—you are bankrolling them for this restructuring, what performance requirements are you going to put on the management and what sanctions if they do not achieve the plan?
  (Dr Shannon) We will monitor the expenditure of the £4.5 million very carefully to ensure that it complies with all Government rules on that sort of activity. They will have to get the approval of ministers for the corporate plan that they come forward with.

  109. There are no specific sanctions like, "If you do not achieve X you are out the window", you are just going to monitor it?
  (Dr Shannon) The Board itself monitors the performance of the chief executive. I am not aware of the total details, but I have no doubt there is a performance element for the chief executive to play. The Board will be monitoring the performance of the chief executive and the organisation against the plan.

  110. Do you think it should be a bit tougher? This organisation has a very sorry tale of its finances. There are a lot of people who will be looking to the robustness of this plan in determining their own futures. Something which requires monitoring and no sanctions at a senior level of management would make me nervous if I was working for HRI.
  (Dr Shannon) We do monitor the performance of HRI carefully.

  111. You monitored it carefully before and it got into a very deep financial hole. Is that how good the monitoring was?
  (Dr Shannon) I would say that it is not unique amongst scientific organisations. Perhaps some of these organisations are learning that commercial and non-government income—

  112. I am a bit unclear, you were busy monitoring two or three years ago and this organisation digs itself into a large financial black hole, from which it is now having to recover, and the message I am getting is that the same careful monitoring process that led to the present debacle is going to be repeated for the next X number of years. That does not suggest a robustness in terms of the way your monitoring operates?
  (Dr Shannon) It will be a smaller organisation. It will not be operating quite as close to the ceiling in the future, so there will be more flexibility for it to balance its books.
  (Baroness Hayman) I think the point you make, generally, is an important one, about the relationship of departments with non-departmental public bodies, the monitoring, the sanctions, the degree of involvement managerially and the levers that departments have over performance for non-departmental public bodies. Quinquennial Reviews are meant to give us some help about those. Management statements between departments and those bodies are meant to give us some framework, but my own experience across three Government departments is that the amount of involvement of senior staff varies enormously within a department with individual organisations. From your line of questioning I take a thesis with which I would not disagree, that when an organisation has a track record of getting into difficulties and there has been a significant investment in a "last chance saloon, let us get it right this time", it is important that both senior officials, whether at permanent secretary level or ministers, monitor that closely. I do not think you should start saying, "We will sack people if this much money does not get in the next six months", I do not think it is quite like that. I will not demur from the general line.

  113. How will you recover the £4.5 million? It is not new money, you are merely bankrolling, as I understand it. How are you going to get your £4.5 million back?
  (Dr Shannon) The £4.5 million will be coming out of the Department's funding, and it will be made against a significant reduction in the staffing of HRI. We are, effectively, buying-out a reduction in the staffing of HRI.

  114. You are putting the money up front. How much will the asset sale, in your estimation, of Stockbridge House be?
  (Baroness Hayman) The sale of Stockbridge House will be the contribution that comes in. There has been a valuation, but that is confidential at the moment. I think given that we intend to sell for the best price available the advice that I have is not to give anyone the details of that.

  115. What can the site be used for other than its current use?
  (Baroness Hayman) I am not aware of any planning restrictions on the site, if that is what you are saying. One thing I am aware of is we may have to offer the property back to the former owners under the terms of the Crichel Down rules, because I believe it was acquired under compulsory purchase.

  116. Who were the former owners?
  (Baroness Hayman) West Riding District Council.

  117. It could revert to the local authority.
  (Baroness Hayman) The offer of sale might have to be made to the successor. I understand that the council in whose ownership it was when it was acquired no longer exists, but it has a successor body. There are rules for offering the property back first to the original owner.

  118. That might be a sum of money under a commercial sale valuation?
  (Baroness Hayman) There are clear rules set down about those sums.

Mr Todd

  119. Michael Jack explored the pretty abysmal track record over a period of time of HRI management to resolve its own problems. I interpreted both your remarks as being reasonably cautious about the level of confidence that you have for delivery on this occasion. You remarked this is a rather smaller body, which might imply it is a rather smaller risk, otherwise not a ringing vote of confidence. You have also indicated that there is a difficulty in working with a non-departmental public body in defining precisely the roles which are involved. Was a more radical option not considered, that with the thrust of HRI clearly being towards the development of more commercial income that the more sensible approach might be to seek to transfer HRI into the private sector?
  (Dr Shannon) My hesitation about HRI is, perhaps, no more or no less than a range of other laboratories that I have had to deal with in the last two or three years, for example the Centre for Coastal Marine Science of NERC. I do not want to run over them. There has been a tendency on the part of these laboratories to believe that there is a pot of commercial money and they all think they are going to get a portion of that. When you add up the portions that everyone thinks they are going to get it adds up to more than the size of the pot. There has been an element of reality today.


 
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