Examination of Witnesses (Questions 200-219)|
MONDAY 19 MAY 2003
Lord Howie of Troon
200. We touched on this question earlier when
we were talking about objectives but, even so, in redesigning
your policy framework how has this new structure been co-ordinated
with DfES, the Treasury and the Inland Revenue? While we are at
it, let me just ask as a rider: I thought I heard your budget
for evaluation was about a million or a million and a half, is
that anything like enough to evaluate this enormous number of
things you are trying to do?
(Mr Rees) There is also a research dimension that
goes with that. I think we find we can make significant inroads
with that budget but we also need to see it in the context of
the research that is undertaken as well.
(Mr Lambert) There are what economists happily call
"economies of scale" in doing that sort of work. While
if you look over a five year period you may have spent several
hundred million pounds on the programme, if you spend a quarter
of a million pounds on an evaluation study you get a very, very
substantial volume of work for that but looking at a very large
amount of money. You can get quite good returns for your investment
201. How about the co-ordination between these
various bodies that I mentioned?
(Mr Rees) For example, Patricia Hewitt and Charles
Clarke have said that they are very keen to have a close relationship
between the departments and officials on skills issues and there
is quite a lot that is happening in that area. For example, the
Permanent Secretaries of the two departments did some joint presentations
last month. I mentioned that the Treasury sit on the Investment
Committee that has been set up to oversee business support, so
there are quite close links there. I gather there has also been
a Whitehall group that has been set up following a cross-cutting
review of small business activities that has been set up to co-ordinate
work in this area across the piece. There is quite a lot of activity
and co-ordination between departments.
(Mr Lambert) There was a cross-cutting review of the
science policy that led to a joint Government paper on investing
in innovation which was led by the Treasury with representatives
from different departments.
202. In the course of this co-ordination and
revision of your policies, whose idea was it to rationalise your
schemes from over 150 to fewer than 20? Was that your idea or
(Mr Rees) I think it dates back to the review of business
support that took place about 18 months ago where the Department
went out and consulted business and various stakeholders and a
really strong theme that emerged from that was that the Department
had too many schemes and it was difficult for business to see
their way through the landscape. I think the Department has taken
on board that message that came through to simplify, much of it
from the business community but also from other stakeholders as
203. The feeling was that you were overstretched?
(Mr Rees) I think the feeling was there were too many
small things taking place. There were a lot of small schemes that
were tailor-made to individual situations and I think the feeling
was that maybe it would be better to simplify the system and have
fewer bigger things, fewer bigger hits if you like, which would
make it easier for the business to see their way through the system
and also easier for officials as well.
204. Would it be fair to say that your 150 schemes
(Mr Rees) Yes, I think some parts of the business
community were confused by that.
205. The Treasury is particularly interested
in, and has been charged with, raising productivity. A lot of
this came out of the government's desire, and at EU level too,
but how are you going to decide whether a scheme affects productivity?
Secondly, even with 20 schemes and various other schemes and major
Treasury concessions on taxation of different kinds, how do you
decide which schemes should have more money and which schemes
less money? Where and how are these decisions taken on a careful
evaluation and rational basis?
(Mr Rees) I think there are probably two issues there.
One is to look at the evaluation itself of the schemes and to
draw some generic lessons from that. The other issue is that the
Department also takes a strategic view of where to put resources.
It published a business plan recently that set out some priority
areas. I think it is a combination of the evaluation evidence
coming through and the strategic higher level decisions that are
taken on the most effective areas to put its resources. In terms
of your first question on how do you assess that for individual
programmes, one of our overarching PSA targets is about the productivity
gap and national productivity figures, so one can look at those
national figures but, of course, it will take a long time for
what the Department does to feed through into the overarching
figures. We have that higher level target and then, if you like,
at the lower level we have the evaluation of individual programmes
where we would look at the impact through asking firms, for example,
the impact on their sales and turnover and look at the productivity
impact on those firms that are directly assisted and try to have
a look as well at the spillover effects which are very important,
the impact on suppliers, on companies and so forth.
206. The data on sales and so on, as you say,
does not tell you about productivity. It might tell you something
about growth but it does not tell you anything about productivity.
I am trying to get at how you are measuring the effect of a scheme
(Mr Rees) Ideally one would look at the impact on
value added in relation to the workforce of the company. In practice
it is quite difficult to get it evaluated, so what we tend to
look at are the impacts on sales of the company in relation to
the workforce. Where we can get value added figures that is obviously
a better way to do things.
207. So people who are managing the programmes
are in an imperative, are they, to ensure that any schemes they
approve are helping improve productivity rather than judging them
by where they have spent the money?
(Mr Rees) We have a new monitoring system that has
been set up.
(Mr Hallett) One of the important lessons from the
past is that aside from not having very clear objectives for the
purposes of intervention, people were not collecting the right
information consistently. So as well as the business case, which
Andrew has mentioned, which forms the proposal that goes to the
Investment Committee so they are in a position to recommend or
not the specific proposal for subsequent funding, and to make
that recommendation to the Secretary of State, there are two other
pieces of analysis, pieces of work, that need to go in in combination
with the business case. One is a balanced scorecard, which is
the approach which has been settled on to define in a consistent
way the performance measures but also the other perspectives,
the relationships with stakeholders, the way we manage the process
internally, internal costs and that sort of thing, so there is
a rounded set of information that we are collecting. Where it
is appropriate we do ask people to collect data which bears on
the productivity judgments. To pick up on some of the comments
that were made earlier, there is also an outline evaluation plan
which is sent to the committee at the same time so that they have
a clear view of where the evaluation evidence is going to be carried
out in the light of the programme and they also are satisfied
that the monitoring data which is going to be collected is adequate
for their purpose because they are applying their judgment and
they want to make sure that the subsequent information gathering
stages are properly defined at the outset.
208. This is a new scheme, is it?
(Mr Hallett) Any new proposal to spend money in the
area of business support will come through the Investment Committee.
In future there will be no business support outside that system.
209. I am sorry, I misunderstood. I thought
you were meaning that the evaluation system was a new evaluation
(Mr Hallett) No. What I am suggesting is that what
is new about the system is to define at the point of approving
expenditure the monitoring and evaluation systems that are going
to be specific to that.
210. I missed that point. The question that
I think was being asked by the Chairman in part was how do you
evaluate the actual outputs of productivity? Not just what is
the relationship like and all the other things, the balanced scorecard,
which is certainly true and very, very important, but how do you
get at the productivity results so that you know whether you should
turn up the volume of money or reduce the volume of money? I am
putting it very simply but that is the thing which I sit here
and am unclear about.
(Mr Hallett) The intention is where we believe that
the information is available, and I think this is probably most
true where we are talking about policies which are quite close
to market or policies which would be in the area of commercial
best practice, for example, it will be quite clear to think about
the productivity effects within the companies that are beneficiaries
and we can match that performance against companies that may not
have benefited from the support so that we can start to tease
out from amongst the many, many factors which affect company performance,
the role of the business support activity. There is another group
of interventions, particularly in the technology area, where probably
we will be much further away from market and there it is important
to be very clear about what the intermediate objectives are. They
may be about levels of research and development, about indicators
of innovative activity, with a background of well understood theorising
about the relationship between those productivity drivers in the
innovation sector and final productivity. I trespass somewhat
on Mr Lambert's expertise in this area.
211. I think it would be helpful if there was
some way in which this particular point could be explored a little
more at some time in written evidence that you could provide about
the relationship between "productivity investment" and
looking at the productivity outputs and the way in which those
two things are related and what information you could give us
about the way it is monitored. That would be very helpful to us.
(Mr Hallett) We would be very happy to do that.
Lord Howie of Troon
212. Insofar as the extent of sales, prices
and so on are part of your evaluation, how do you cope with a
situation such as Dyson, the man who invented the fancy vacuum
cleaner, which is quite expensive? He is shifting his factory
from the West of England to some former colony, I cannot remember
where it is, somewhere far, far distant, and the effect of this
in his mind is to increase his profits and increase the value
of the sales. He is not going to reduce his price, I do not think.
Does that mean increased productivity because there is no doubt
that he has got an awful lot of added value?
(Mr Lambert) It presumably raises the productivity
of his whole business because his judgment is clearly there are
lower input costs in another location that enables him to keep
the business going whereas at current high levels he might not
do so if he tries to do all of his manufacturing in the UK given
the relative prices. What the effect on the productivity in the
UK economy as a whole will be is quite difficult to measure.
213. It might be indeed. That is really my point.
(Mr Lambert) If the business survives and carries
on with higher value added activities, for example, on the research
side in the UK, the countervailing effects of his decision
Lord Howie of Troon: That is a good word, "countervailing".
I am sure you use it quite a lot.
214. What is the rationale for the policy to
support science parks? It is proved that the ones off science
parks are much better than the ones on and being on a science
park has not impact at all.
(Mr Lambert) I think it is worth saying, certainly
as far my knowledge goes, there is no direct central government
funding for science parks. They are essentially initiatives by
universities, in some cases with the co-operation of the local
authority, to make some of their land available for this particular
use and in some cases to put up the buildings and give fairly
low costs of accommodation to small businesses in their early
stages, so we are not spending a lot of public money in science
parks, they are not part of DTI policy to fund them. I think the
DTI and the Office of Science and Technology provide a little
bit of help to the Science Park Association, the trade association,
to do publicity and things like that, very modest amounts of funding.
We are generally in favour of this as a good idea but we do not
give it a lot of money. I think the comparison of survival rates
between on and off science park companies is probably being made
between high technology companies of different sorts but once
they have been on the science park these small firms are subject
to the same market forces as any other and the risk to small business
is quite high. It does not necessarily give them a better survival
rate than other high technology companies. I think we tend to
find that high technology and innovative companies have a higher
survival rate than average companies, so in that sense the science
park is providing another launching pad for that part of the economy
which contributes knowledge and other things to the rest.
215. Your advice would be do not go on a science
park, would it?
(Mr Lambert) It is a purely voluntary activity and
it suits some firms when they come out of university, but not
by and large. Possibly reverting back to your previous question
about "intrapreneurship", which I guess is something
in the area of spin-outs, which I know Lord Sainsbury is very
enthusiastic about, from the name "science park" one
might think it is a lot to do with coming out of universities
but, in fact, it is not, it is much more of a real estate operation.
216. The DTI is effectively the sponsoring department
for Regional Development Agencies, is it not?
(Mr Lambert) It is now.
217. I understood a number of RDAs to be very
keen on science parks and on clusters, links between university
and industry, and the DfES is very keen on the important role
of major research universities. Are you saying this is all a lot
of guff, that it has no value at all?
(Mr Lambert) No, the science park is quite a specific
218. Are the RDAs not encouraged by yourselves
in their regional strategies and are not most of the regional
strategies talking about clusters and links with universities
physically, with high technology parks at universities, and you
sponsor them, do you not?
(Mr Lambert) This is starting to trespass outside
my area of expertise and competence. In a sense you have RDAs
because they are developing regional strategies to fit their regions,
so while the DTI approves the strategies, it does not drive them
and dictate what the RDAs should do. Some of the particular forms
of knowledge sharing, like clusters or incubators, science parks
and other things, in practice when you get down to it are rather
different. A cluster is where firms tend to be able to exchange
information rather well because they are geographically close.
It does not necessarily mean that they are close to a university.
219. So close, but not too close. The issue
it raises, of course, is if the RDAs are getting more and more
of the spend in the area of industrial promotion and productivity
drive and so on, and as I understand it more and more is going
into that single budget, you have told us about you setting objectives
and you doing assessments, you are the sponsoring department for
most of the regional RDAs, do you set objectives and the framework
for evaluation for them? Who is actually making sure that this
increasing amount of money going to the RDAs is subject to the
same rigour that you have told us directly supported schemes are
(Mr Rees) The RDAs have a set of objectives a little
bit like our PSA targets but on a regional level, so they will
have objectives to improve productivity and other things in that
area that are agreed centrally. Then they have some freedom within
the resource that is allocated to them to achieve those objectives.