WEDNESDAY 13 DECEMBER 2000 _________ 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. Chairman 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. 60 million of public money had been committed to restructuring. You were being asked to invest another 4« 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 4« 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. 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 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. 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 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. 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 valuation? (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 4.5 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 issues. 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 time. 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 research. (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. Chairman 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 funding? (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 available? (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 assets. 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 4.5 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 HRI. (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 objectives? (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 60 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 12.5 million is the right number for your contribution to HRI? (Baroness Hayman) 12.5 million as the R&D income? 154. Yes. Your input to HRI. Why is 12.5 million the right number? (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 11 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 12 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 competitiveness. 159. It is a levy body which has a quasi-governmental relationship already. (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 customer. 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. Chairman 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.