Members present:
              Mr David Curry, in the Chair
              Mr David Borrow
              Mr David Drew
              Mr Michael Jack
              Mr Austin Mitchell
              Mr Mark Todd
                 BARONESS HAYMAN, a Member of the House of Lords, attending by leave of
           that House, Minister of State and MR DAVID SHANNON, Chief Scientist,
           Ministry of Agriculture, Fisheries and Food, examined.
        93.      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.
        94.      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.
        95.      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.
        96.      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 day to day involved in the running of that organisation.
        97.      You were conscious, nonetheless, there had been a series of
  restructurings here?
        (Baroness Hayman)          Yes.
        98.      œ60 million of public money had been committed to restructuring.
  You were being asked to invest another œ4« million in restructuring.
        (Baroness Hayman)          Yes.
        99.      You must have felt "We had better get it right this time.  This
  sequence cannot continue".
        (Baroness Hayman)          Yes.
        100.     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.
        101.     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.
        102.     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
        103.     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.
        104.     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.
        105.     What I am striving for, you are going to invest another œ4«
  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
        (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.
        106.     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.
        107.     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.
        108.     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.
        109.     Are you going to put sanctions and performance measures in? 
  You are investing œ4.5 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 œ4.5 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.
        110.     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.
        111.     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.
        112.     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---
        113.     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.
        114.     How will you recover the œ4.5 million?  It is not new money,
  you are merely bankrolling, as I understand it. How are you going to get your
  œ4.5 million back?
        (Dr Shannon)   The œ4.5 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.
        115.     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.
        116.     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.
        117.     Who were the former owners?
        (Baroness Hayman)          West Riding District Council.
        118.     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.
        119.     That might be a sum of money under a commercial sale
        (Baroness Hayman)          There are clear rules set down about those sums.
                                Mr Todd
        120.     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. 
        121.     We all have that T-shirt and have found that it does not
  quite amount to what we thought.
        (Baroness Hayman)          If I can answer both parts of your question.  If I
  paint the glasses half empty rather than half full, it is only because I would
  prefer to be accused of pessimism and then found to be wrong than to be
  accused of over-optimism.  I think it is prudent to be fairly rigorous, that
  is not to say that we would have invested œ4.5 million of public money if we
  did not believe that these plans were worth it.  As far as the future of the
  organisation, we are between Quinquennial Reviews, where the responsibility
  is to look broadly and radically at all of the possibilities.  The last
  Quinquennial Review concluded that HRI should stay in the public sector, I
  believe, for the time being, at this moment in time.  We have another
  Quinquennial Review coming up, exactly the same questions that we are being
  asked should be asked then.  I do not think it would be appropriate to
  anticipate that Quinquennial Review now.  I think we have to give the
  organisation the opportunity to restructure, to get into the strongest
  position as possible, to have the science assessed and then to look at those
        122.     That is a rather high-bound answer, if I may say so, to
  suggest that we operate on a Quinquennial Review cycle and we must, therefore,
  be driven by that, when the evidence before us is of an organisation which
  certainly, on the face of it, is developing a direction towards the private
  sector, which is clear. I cannot quite see why the public sector should be
  taking the level of risk of continuing on-going commitments to a management
  belief without their undertaking that risk for themselves as well.
        (Baroness Hayman)          It could be high-bound, but it could just be that my
  assessment of the situation is different from your assessment of the situation
        123.     It could be.
        (Baroness Hayman)          --  as to the necessity of taking radical action now. 
  There is still a large proportion of the income - I do not have the pie chart
  here - of HRI that does come from public sector sources.
        124.     Declining.
        (Baroness Hayman)          Declining when you put BBSRC and MAFF together?  They
  have got 85 per cent of MAFF's horticultural research over a stable period of
        125.     There have been questions raised about whether that
  proportion is appropriate as well, that there are other bodies in this country
  that can provide horticultural research of quality, and that HRI, to some
  extent as an additional prop to its death by a thousand cuts that it has been
  going through for the last few years, has been swallowing that cash too.  To
  some extent the institution is driving the strategy rather than clearly
  applied strategic thinking about what we are wanting out of horticultural
  research in this country and how best to deliver it.  That is the picture that
  we get, that this is all about how do we keep HRI trundling along until the
  next Quinquennial Review and then we will look at it properly rather than
  looking radically at the options now when, to be honest, the opportunity
  presents itself.
        (Baroness Hayman)          I am not sure that the opportunity does present itself
  quite as simply and in quite such a clear-cut way as you suggest.  Equally,
  I am not sure that it is fair to characterise the institution as running the
  strategy.  If we believed that there was an incompatibility between our
  strategy for horticultural research and the research strategy broadly and the
  amount of funding that was going into HRI, although a proportion of it, as I
  think you have acknowledged, goes into competitive funding, it is not going
  automatically into HRI, then I think that you would be right to say now is the
  time to reassess.  When we do look at our aims for horticultural research and
  the existence of HRI there is not such a bad fit that we should immediately
  go and suggest that we have different radical changes.  We are, of course, in
  the middle of a consultation on the whole of the science strategy within MAFF
  and, again, I would like to look at the future of individual institutes in
  that context rather than be triggered by the financial problems within one of
  them into what could be a precipitate restructuring.
        (Dr Shannon)   Just to comment, I think the Prior Options Review will
  need very serious consideration.  It seems to me a question of whether if HRI
  were in the private sector would BBRSC continue putting funding in.
        126.     That may well be the kind of sensible choice that someone has
  to make as to whether that is the most quality oriented way of delivering the
        (Dr Shannon)   It may well be but, if I recall the history, HRI was, if
  you like, strongly advocated by the industry in the early 1990s.  The solution
  was to have the range of science within the institute from basic science
  through strategic science to the industry's own near market funded work.  I
  think in the responses you have had, whilst there have been some that point
  to more radical solutions, many have still made the point about having the
  strength of having the range of sciences within one organisation.  The
  horticultural industry also made a very strong case at the time, whether that
  case still holds or not, that horticulture was different, it was a large
  number of small sectors that needed to have focus in its research effort.  All
  of those questions will need to be looked at again.  The point of the
  Quinquennial Review is to carry that out thoroughly.
        127.     But to be really horrible about this, the 60 million quid
  which has gone down already, another four and a half million quid which is
  going into restructuring, would not half have gone a long way.  You cannot
  spend it now, it has gone, but it would not half have gone a long way in
  horticultural research if it had not been focused on propping up HRI and
  gradually funding its decline, which is what appears to have happened.  You
  are continuing with the process.
        (Baroness Hayman)          You can always characterise spending as throwing good
  money after bad, you can always do that.
        128.     The brave person has to say "when do we turn the tap off and
  say 'I am sorry, I think we have just got to think the strategy through?'" 
  You are basically kicking that decision a little bit further away.
        (Baroness Hayman)          One has to try to get the right balance between being
  brave and being wise.  That is what one is trying to do.
        129.     Leaving aside Dr Shannon's intimation that there are large
  numbers of failing scientific institutions across Britain, and if he could
  give me a list we might call them in one by one, clearly there is a great deal
  of work to be done here, let us move on Stockbridge House, if we may.  Has the
  CSL expressed any interest in taking it over?
        (Baroness Hayman)          As I understand it there has been a discussion at CSL
  Board.  They have looked at a possible business plan for acquiring the site
  and have decided against so doing.  I think what they are interested in doing
  is potentially placing some glasshouse work there that they sub-contract out
  at the moment because they do not have the capacity themselves.  There is no
  formal expression of interest in taking over the site.
        130.     So, as things stand at the moment, it is not a potential
  customer for the site?
        (Baroness Hayman)          No.
        131.     Given that you have to get best value from it, given that it
  could end up back in local authority ownership because of the origins we have
  talked about, given that Mr Prescott is anxious to build lots of high density
  houses on used sites, and this is clearly a used site, is not the best value
  just to put houses on it?
        (Baroness Hayman)          I do not think I can answer that question.  We will
  have to find out what the future is.
        132.     Would you facilitate the formation of a Stockbridge House
  Technology Centre?  If one were formed, would it be a candidate for Government
        (Baroness Hayman)          I am sorry, I sound as if I am not answering
  hypothetical questions.  I think I would take Mr Todd's strictures about
  putting Government funding into things that are essentially private enterprise
  exercises, one would have to see what it looked like and whether there was a
  case for facilitation or support.  We have had one meeting already with John
  Grogan MP, who obviously has interests in looking at solutions that will help
  in terms of the future of Stockbridge House.  I have agreed to meet again if
  that would be helpful to him.  I think at this stage we explore but we cannot
  commit in any way.
        133.     Obviously HRI itself does not wish to facilitate the creation
  of a potential competitor, and we understand that and they explained that a
  short while ago, but there is some pressure from local growers who would quite
  like to see the facility continue.  You equally from your point of view, if
  you are bailing out HRI, do not wish to see things happen which might lessen
  the value of putting into the bail out, as it were?
        (Baroness Hayman)          No.  Nor would we wish, if the analysis is that there
  is over-capacity in horticultural research, to underwrite the creation of
  extra capacity.
        134.     So if then there were to be the creation of a new institution
  or body of some sort there, they would be wise not to assume in putting
  together their business ideas that there would be any Government support
        (Baroness Hayman)          I think they should not make any such assumption.
        135.     We have established that the site is a MAFF site.
        (Baroness Hayman)          Yes.
        136.     Who do the facilities belong to?
        (Dr Shannon)   I think the movable assets belong to HRI, as I understand
  it.  The actual site belongs to MAFF.  I think that is normal.  The laboratory
  equipment and other facilities on the site will be on HRI's books as their
        137.     You are satisfied with the arrangements HRI has made to
  transfer work from Stockbridge out to its other sites?  Obviously the SOLA
  programme is the one that people get most agitated about.  You believe that
  is assured?
        (Baroness Hayman)          Yes.  That is obviously one of the questions that was
  fundamentally explored and whether there was the capacity.  That underpinned
  the choice of Stockbridge House as the site to close, whether there was the
  capacity both in terms of physical resources and people to undertake the work
  that was done there at other sites.
                               Mr Borrow
        138.     Just very briefly on the Minister's comment on the reason for
  the choice of the site.  Did no alarm bells go off in your head during those
  discussions that, given the sensitivity of the north/south divide in
  Government research establishments, the closure of Stockbridge House may not
  have been a, shall we say, politically sensitive thing to do compared with
  closing another establishment?
        (Baroness Hayman)          I do not think this is part of the north/south divide. 
  I think that the appropriate question to ask was whether this restructuring
  package would deliver in the context of the business plan, and whether this
  was in those terms the site which would cause the least damage to HRI and its
  future capacity.  That was the basis on which we assessed the proposal.  We
  had to ask whether other sites and other options and combinations had been
  appropriately assessed.  This came out as the strongest in those terms,
  meeting the scientific and the business plan, and that was how it came out.
        139.     In paragraph six of our conclusion from the last time we
  looked at this area, we recommended a Bill be laid before Parliament to
  rectify the legislative problems which HRI faces.  We learn from your own
  evidence, paragraph 15, where you say, "The intention of successive
  governments since 1990..." I can personally own-up and say it happened whilst
  I was there and it has also happened whilst you were there, and that nothing
  has happened.  Mr Curry as well.  We accept our share of the blame.  You have
  been there now for three and a half years, so why has there been no action?
        (Baroness Hayman)          I think at the beginning of that period, probably, the
  reason for no action was the same as yours and Mr Curry's, that there was a
  desire to bring in legislation and to tidy this up and to provide a
  legislative framework.  However, in terms of competition with other MAFF
  priorities and other government priorities this never came top of the
  legislative table.  Can I now deal with the immediate past and the present
  time?  There are, if you like, three sets of reasons for looking at
  legislation. Two of the most urgent ones, and the ones that have been running
  sores, have been the employment of staff and pensions.  As I understand it,
  the 1999 Employment Act gives an opportunity for sorting out some of the TUPE
  issues without primary legislation, the Employment Relations Act.  I believe
  that it is possible that we will be able to bring all of the pensions of
  permanent staff within the Research Council's pension scheme.  There is a
  meeting scheduled with the Treasury this month to do that.  The overall
  governance issues are still left to be resolved.  I suspect that the hard
  truth is that it will be difficult to do that as we get nearer to the
  Quinquennial Review, even though that is too far away for Mr Todd's liking.
        140.     There would have been opportunities, with a bit of
  innovation, to have got the legislation in.  You have not exactly been
  overburdened in this Department with new primary legislation, have you?
        (Baroness Hayman)          No, we never are.  I think the Chairman might agree.
        141.     There are two precedents, the previous Government got the
  Bail Amendment Bill using the ten minute rule procedure and there is always
  the Handout Bill.  Have you considered either of those two options?
        (Baroness Hayman)          Both of those were considered and the advice was that
  a Private Member's Bill was not an appropriate way forward.  We did look at
  the Handout Bill but within departmental priorities there were other bills
  that came further up.  If you do not have a large legislative programme it
  does not make it easier to get small Bills through.  It is something that I
  would prefer that we had been able to achieve, and I have to say that we did
  not achieve it.
        142.     You are going to have this meeting with the Treasury, when
  can people expect to know if the alternative routes which you have outlined,
  particularly in reference to the employee problems, are going to be resolved? 
  It sounds like an endless ma€ana argument, if we keep this going there will
  be a Quinquennial Review and then there will be something else and we will
  never know what the answer is.
        (Baroness Hayman)          I do not think I was talking about the Quinquennial
  Review in terms of resolving the employment issues, I hope we can make faster
  progress on that. Although we do need to sort them out I have been assured
  that people are not being disadvantaged, certainly in terms of their pensions,
  by the current untidy and unsatisfactory state of employment.
        143.     Tell me how the legislative circumstances of HRI are
  currently affecting its ability to borrow and to finance its operation?  For
  example, is its wish to borrow money currently a problem as far as that is
  concerned, because under the current status it would count against your
  departmental budget?
        (Baroness Hayman)          I think it is hard to bottom this one up because I
  think some of the difficulties about borrowing are more in people's minds than
  in the actuality of the legislation.  There are opportunities for HRI to
  borrow.  There are, indeed, issues about our departmental spending limits, but
  because the œ4.5 million that we are putting in is being met out of MAFF's
  budget then the borrowing issue does not arise there.
        144.     If, for example, HRI saw - we heard about the excellence of
  their science - an opportunity to develop a facility to invest in some new
  process, are you saying that there is not a problem? 
        (Baroness Hayman)          I am saying that I do not believe that there are
  insurmountable problems posed by the legislative framework for borrowing in
  the sort of circumstances that you have described.
                               Mr Borrow
        145.     Earlier on we had some discussion about the funding link
  between MAFF and HRI, and the fact that HRI is overwhelmingly dependent for
  its funding on MAFF.
        (Baroness Hayman)          50 per cent.
        146.     Over the last ten years there has been something in the
  region of a 25 per cent reduction in real terms in the funding by MAFF to the
        (Dr Shannon)   To keep the record straight it is probably more like
  one-third, rather than 25 per cent.
        147.     Do you feel that MAFF has given HRI sufficient notice of
  those reductions in funding for them to be able to incorporate those changes
  in their business plan?  Given the pattern of restructuring of HRI do you feel
  that there is any connection between the reduction in funding from MAFF and
  the failure of those restructuring plans to actually achieve their original
        (Baroness Hayman)          We have always tried to give HRI as much notice as
  possible of funding reductions, or at least to warn it of the risk of
  reductions.  I think we have kept them in the loop in terms of MAFF's overall
  science budget and the likely difficulties and repercussions for HRI.  It has
  actually sustained its funding against a background of reduction in our total
  spend, and increased use of competitive tendering.  We still, as you point
  out, account for some 50 per cent of the R&D income.  There has also been a
  great deal of investment, as we discussed, in the infrastructure. There has
  been a firm commitment and there has been appropriate information given. 
  Indeed the business plan that HRI are now looking at is looking towards MAFF
  funding over the next three years and recognising the possibility of decline
  in that now.  If you like, we have two factors that have squeezed and
  impinged, one has been the overall reduction in the MAFF science-based
  spending and the other has been the enormous pressure, particularly in areas
  of animal health and BSE and TSE research.
        148.     I am not disputing that at all.  Obviously MAFF's commitment
  to HRI is demonstrated by the amount of funding that is being made available
  for restructuring.
  The possibility of HRI not being solely dependent upon MAFF funding, that is,
  if you like, research programme based, has been raised with the Committee, but
  it may actually lead to some greater stability within HRI if MAFF recognised
  its commitment to HRI by making some core funding available because there is
  no dispute that MAFF is committed because of the œ60 million of restructuring
  money that has already been invested.  Do you think that may be a route that
  could be taken in the future?
        (Baroness Hayman)          At the risk of offending Mr Todd I will say that I
  think the funding relationship equally has to be considered as part of the
  Quinquennial Review.  If there were issues before then where we believed that
  there were restrictions in the management statement which are genuinely
  preventing it from exploring its full potential then I think we could look at
  that.  I think the answer to whether or not you want to core fund an
  institution rather than simply fund it as a competitor for work against other
  competitors does come back to fundamental issues about whether this capacity
  is important for Government to have maintained in one place and in one
  particular way, in which case then core funding may be an appropriate way to
  do that.  I think it does take us back to some fundamental questions about
  whether the organisation and the capacity itself are important to Government
  in one place or whether you feel you could meet that capacity across a range
  of providers.  I think that is the fundamental issue.  The funding then
  follows that, the funding structure follows that decision.
        149.     I think Mr Todd might wish to come in.
        (Dr Shannon)   Could I just add to that.  The new MAFF Science Committee
  is obviously looking at the priorities across the budget and will advise
  ministers about that, but equally they will look at a whole range of other
  things, about the question of should there be core facilities, core expertise,
  that is maintained on a different basis from the generality of the MAFF
  research programme.  I have no doubt the Science Committee will look at that
  in the not too distant future.
        Chairman:   I wonder if Mr Borrow would like to continue on research now
  and then I will come to Mark and to Michael, just for better organisation.
                               Mr Borrow
        150.     When MAFF commissions research at the moment, to what extent
  are the resources of that research monitored in terms of value for money and
  the effectiveness of that research?
        (Dr Shannon)   That is probably a rather specific question.  The research
  is funded on a basis that specifies what research we expect and then we have
  annual reports on projects and, indeed, all of our programme is now on the web
  so you can see exactly what projects MAFF is funding and you can see what
  reports are available.  There are annual reports on the projects and then at
  the end of the project is a final report.  I should have said it is knowledge
  of the final report that is on the web.  So you can get from MAFF copies of
  the final reports of all the projects it does.  In addition to that we have
  a formal review of all the projects within a programme which invites the
  researchers to present their work, it has external academic peers who are
  looking at the quality of what is done, it has commercial peers or
  industrialists who are looking at the relevance of what is done.  As a result
  of that projects are either dropped or further work is funded.  There is a
  very fulsome programme of review of the research programme.  In addition to
  that we do carry out a programme of evaluations of specific areas of work: 
  did the research provide the answers and were those answers then effective in
  changing the policy, in other words did the research really contribute to
  policy in the way that we hoped it would do?
        151.     You touched earlier on in terms of the dilemma that exists
  between mixing pure science research and research that is directly related to
  industry.  Certainly the feeling in the industry some years ago was that the
  model where they were brought together within the same institution was the
  model which should be followed.  Certainly we, as a Committee, have heard a
  number of thoughts that they should be separated.  I wonder whether that is
  being reviewed, or may be reviewed, within MAFF or whether MAFF is happy with
  the existing model?
        (Baroness Hayman)          I think it is one of the fundamental issues that you
  have to keep under review.  Just because ten years ago the belief was that the
  synergy was best created by having a research facility that could go right to
  near market research that was commercially funded from very lab based, blue
  sky, horizon sky research was the right decision, I do not believe that it is
  the wrong decision now but I think that assumption has to be questioned.  You
  do not not revisit it because it was the right thing to do ten years ago.  I
  have not been persuaded that people feel that they are working in such
  completely different sectors that their synergies would be better if they were
  silo-ed into different compartments.  I think there is evidence of the fact
  that making the connections is an important area and that people who work in
  genomics now are actually going to be doing stuff that is very relevant to
  commercial markets quite soon.  There are still scientific advantages to
  keeping those things together.  It is a legitimate question to be asked and
  one that I think we should continue to keep asking ourselves.
        152.     And if when you are considering placing a research contract,
  shall we say a research contract for something that is very much at the lab
  end, would you take into account in deciding in which institution to place
  that contract how relevant it is to have that in an institution where there
  is the industry end working within the same institution?  Is that a factor
  that would affect your judgment on giving that contract?
        (Dr Shannon)   If it was placed competitively we would look at does the
  bid that comes forward address the policy objective that the research is being
  carried out to underpin.  Then we would look at the context in which the
  research was being carried out and the quality of the science that contained
  within it and, at some point, obviously the cost of the project.  We would
  look at whether the people were capable of doing the research, whether we had
  high confidence that the people were capable of doing a good research project
  and that the project was focused on the issue we wanted it to be focused on. 
  Clearly the facilities and the other work around it is quite often a strong
  element in convincing that the project will be successful.
                                Mr Jack
        153.     Just one question.  Why do you think œ12.5 million is the
  right number for your contribution to HRI?
        (Baroness Hayman)          œ12.5 million as the R&D income?
        154.     Yes.  Your input to HRI.  Why is œ12.5 million the right
        (Baroness Hayman)          I think you have to ask whether the MAFF horticultural
  and potato R&D programme is the right number, and that has to be asked in the
  context of overall priorities for department R&D, and then whether what HRI
  gets out of that is the correct slice of it.  Both those figures are around
  œ11 million at the moment.
        155.     Tell me why you think the slice is correct?  Why are you
  content with this number?
        (Baroness Hayman)          I am content with the number because I know we are
  undergoing a thorough evaluation of the research programme and we will be
  questioning the amount that goes into horticultural R&D in the sense of
  setting the overall science strategy.  I am not just relying on what
  historically has been there in the past, I am also involved in a process that
  is assessing that.  Out of that, 85 per cent of that work goes to HRI and 25
  per cent is out to competitive tender.  Again, one looks at each of those as
  to whether it should go there.  The figure is not that we have decided to
  spend œ12 million, the figure is organically produced by the contracts that
  are won by HRI.
        156.     So is this a bottom up budget or a top down budget?
        (Baroness Hayman)          It is a bottom up budget in the main but there are two
  sets of research contracts that are put with HRI.  Some of it is out of the
  competitive budget, that goes out to tender, and some of it is out of the
  horticultural budget.
        (Dr Shannon)   HRI is a major contractor for us in relation to
  horticulture.  The 11 million does contain elements of work on nitrates in
  relation to horticulture.  It does attract budgets, it does attract funding
  from other elements within the MAFF overall programme.  The question you ask
  is one that we ask repeatedly, of course we have to look after public
  protection, the environment and then look amongst the agricultural sector and
  the horticulture sector to make some judgment about what the relative spend
  should be in relation to horticulture versus pigs, poultry, and another sorts
  of sectors.  The one feature, of course, that horticulture has is that it is
  a large contributor to the GDP of the agriculture and horticulture industry. 
  I think something like 1.8 billion of added value is added by the horticulture
  industry and the horticulture sector. That is a very large slice of the added
  value across the whole of the agriculture sector.
        157.     My final question is, if it is a bottom-up budget what was
  the sum total of the elements by how much it was reduced.  Take the total
  horticulture spend, you have to divide up the cake with a number of competing
  outcomes, but if they are bottom-up budgets you add up all of the bids and
  then you have to cut something off the top.  What was the pile of the bids 
  and what was the cut-off?
        (Dr Shannon)   We normally do a PES-type exercise asking policy customers
  what research requirements they think they have and what research they need. 
  That exercise usually generates about 20 per cent or 25 per cent more than the
  budget we have to spend.  We then have to do a rigorous assessment of what we
  think the priorities are and then allocate the budget on the basis of that. 
  It has been the R&D Committee within MAFF that has done that and has advised
  ministers on that in the past.  It will be the Science Committee that will
  advise ministers in future on the balance of expenditure between sectors and
  on things like environment versus competitiveness.
        (Baroness Hayman)          Am I right in saying there are some sources of income
  for work, whether it is European work or anything else, that are funded by a
  number of partners?  So it is possible that MAFF funding levers-in funding in
  from other organisations, whether it is the commercial sector or the EU as
  well.  There is that wrinkle to it in addition.
        (Dr Shannon)   The obvious one is the link programme, there is very large
  horticulture link programme which is 50/50 funded with the industry, I think
  it is 15.9 million over a number of years.
                                Mr Todd
        158.     You will already have the thrust of my agenda  on this, I
  think.  I will not go through the way in which I think the Ministry has lead
  this process poorly, to date, incidentally not purely under the watch of this
  Government.  Could I add one other thought to the way in which this should be
  re-evaluated in future, which is the horticulture industry unusually does not
  rely on subsidies in its normal activities, many of the other areas you talked
  about do, and this is one of the very few years in which the Government makes
  any significant contribution to assist the sector.  Would it not be better to
  empower the growing community more to purchase their requirements more
  effectively? Currently the HDC is a major player in discussing with Government
  and with the HRI their particular goals, but, to be honest, does not have a
  particularly strong purchasing relationship of its own.  Would it not be
  better to see Government resources transferred to the HDC so that they can
  make their own commercial choices of where they should place their proportion
  of research activity?
        (Baroness Hayman)          I am trying to think through some of the implications
  about that sort of transfer of funds and how it would be viewed in terms of
        159.     It is a levy body which has a quasi-governmental relationship
        (Baroness Hayman)          Exactly and, therefore, one has to think about the
  model.  I am thinking technically about the modelling difficulties, which I
  think is not the right way to take your approach which I suspect is more about
  getting a more direct link between the customer and making them a smarter
        160.     That is right, a stronger purchaser/provider relationship. 
  There have been criticisms of too cosy a position, perhaps because HDC does
  not really have enough resources of its own to manage that process as
  rigorously and as effectively as it might.
        (Baroness Hayman)          One of the things that has emerged from my
  conversations with HRI is the need to strengthen their understanding and
  communication both with HDC and with growers themselves in different sectors
  of the industry.  One of the things I have learned and want to do within MAFF 
  is I do not have specific responsibilities for horticulture as an industry,
  I have responsibilities for science and science institutes and, again, that
  is the possibility of a gap and not being a smart enough customer, whether you
  do it through transfer of funds or whatever.  I think joining up and getting
  closer to making sure that you do not have too convoluted a relationship, too
  many Chinese whispers, between the people who want the work done and know what
  is necessary and the people who are doing it is a lesson.  Whether you do that
  by not having direct MAFF funding and channelling it through HDC, for example,
  is something I do not want to commit to.
        161.     Not even I would suggest that was the total route because
  there are clearly longer term research objectives which the HDC would be a
  poor evaluator of because they have nearer to market goals.  The impression
  one has of this sector is of a diffuse sector of procedures, a relatively lose
  network that drives the HDC and a relatively small institution to make
  judgments on their behalf.  That could be improved substantially by additional
  Government support to the HDC's own levy based research activity to put a
  little bit more power into their relationship with not just HRI but the other
  producers of research which could be available to them.
        (Dr Shannon)   Could I make perhaps two comments.  One is the Link Scheme
  is a very direct way in which the industry can leverage, if you like, more
  money out of Government in relation to the issues that are important to the
  industry.  The other one is that we do have a very close relationship with HDC
  and my staff constantly provide information of what MAFF is funding and we
  take note of what the HDC is planning to fund, so that we do try to create
  some sort of seamless whole out of the overall spend.  It has not been
  Government policy to transfer taxpayers' money to organisations like HDC in
  the past.
        162.     Is it a reason not to do it now?
        (Baroness Hayman)          Although I would not like in any way to undermine HDC
  or what they are doing, or indeed what we are doing, or David's colleagues,
  I think communications and relationships and cutting out middle men are
  usually good things to work on in terms of getting the job done properly.  So,
  taking some of those issues on board and considering them without prejudging
  what the end result will be I certainly undertake to do.
        (Dr Shannon)   The terms of the Link Scheme were carefully worked out
  with the European Union to ensure that we did not end up providing national
  aids, which is against Community rules.
        Chairman:   Thank you very much indeed both of you.  Neither of you two,
  of course, are in the position that we are, we all face our Quinquennial
  Review quite shortly.  In any case, I have a feeling that we will want to
  follow this one quite closely.
        Mr Todd: A rather less hidebound timetable than the Minister has
  indicated for this.
        163.     We may want to keep a close eye on this.  I am intrigued by
  Dr Shannon's remarks that there are quite a lot of organisations that are in
  the same boat.  Any list he wishes to give me would help us to sort it out and
  we will do our best.  Thank you very much indeed for coming.  This being the
  season of the year, Happy Christmas.  You may well want to join Horticulture
  Research International at the Salvation Army carol concert in Westminster
  Hall; salvation is something we are all in need of.
        (Baroness Hayman)          Absolutely.  Thank you.