Wednesday morning saw the first evidence session under the new membership of the Business, Innovation and Skills Select Committee. As a Committee, we chose to use this opportunity to put Vince Cable (as Secretary of State for the Department), and David Willetts (as his Minister of State for Universities and Science) through their paces, and put their recent announcements and departmental plans for the future in the spotlight.
This was the chance for Vince Cable to set out how the government was going to rebalance the economy. It was his big opportunity to spell out their desperately-needed strategy for growth, and his vision for how we would rebuild an economy that was sectorally and regionally diverse, with strong, sustainable growth. I looked forward to hearing about the evidence behind the decisions and announcements that had already been made, and his rationale and thinking for future plans.
With these expectations, what we actually heard from the Secretary of State and his Minister was a disappointment. This disappointment started before the meeting had even begun, when we received copies of the Department’s Strategy for Growth, contained in what Vince himself said ‘could not be described as more than a pamphlet’. His opening rhetoric may have sounded good, but his assertion that a new economy should be rebalanced rings somewhat hollow when, as I pointed out to him, the only mention of a regional strategy to rebalance the economy comes on page 14 of a 16 page document.
As a Committee, we pushed him on the abolition of the Regional Development Agencies, and the subsequent establishment of Local Economic Partnerships and expressed our grave concerns about the uncertainty and confusion within the business communities. I asked Vince Cable about the justification for choosing some areas for ‘renationalisation’ to Whitehall (such as trade and inward investment). While it is true that in some areas with relatively high fixed costs it may well make sense from an efficiency point of view, in other areas, the regional impact could well be devastating. Unfortunately, Vince didn’t think it would be possible to publish his ‘consultation’ that formed the evidence base for these decisions and conceded that not enough had been done to assess the regional impacts.
The quality of the ‘evidence base’ used by this government to inform their decisions over where the cuts should fall was again called in to serious question by the Committee, following an article in this morning’s FT that suggested that the government’s case for cancelling the loan to Sheffield Forgemasters has been undermined. Previously, MPs had been told that the government cancelled the loan to the company on the basis that it was inappropriate when the directors could instead have raised the money by diluting their shareholding. Today, we learnt from a private letter from the Deputy Prime Minster to the Chief Executive of Forgemasters, that the company were in fact prepared to do this. I questioned Vince Cable about what other evidence had been drawn upon to decide that this loan, not even a grant, after all should be cut over other areas. The only response he could give was that it was a question of affordability. He admitted that the longer-term benefits of the project (to the region and the UK) may well have outweighed the immediate savings from the short-term cuts, but that in times of budgetary constraint, difficult decisions have to be made. Not a very convincing answer – surely, it is in these times of financial difficulties, that we should be looking to maximise every last return out of the reduced money that we do have to spend building the economy of the future that will reduce the deficit and deliver private sector jobs. Therefore it is at these times more than any other that the question of which bits of expenditure gives us maximum returns for our investment, particularly when we are talking about areas of expenditure that generate jobs and growth to the regions and the UK as a whole.
From my point of view, this morning’s session was a depressing confirmation that this government has no coherent strategy for growth and no sensible evidence-based process for deciding where the cuts must fall. I agree that the reduction of the budget deficit must be a priority, but there are choices to be made that should be based on fairness, economic returns and evidence. This was a missed opportunity for Vince Cable to articulate his vision of our future economy, and a chance to provide sound explanations for the cuts that he has chosen to make. Neither of these things have been achieved, and we still have no understanding of how this government thinks sustainable growth will be ensured. In fact, the main outcome that I took out of this morning’s meeting was that as a Select Committee charged with scrutinising the expenditure, administration and policy of the Department for Business, Innovation and Skills, we have an enormous task on our hands.
Rachel Reeves is MP for Leeds West and a member of the Business, Innovation and Skills Select Committee
Tags: BIS, industrial strategy, RDAs, Sheffield Forgemasters, Vince Cable
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“Previously, MPs had been told that the government cancelled the loan to the company on the basis that it was inappropriate when the directors could instead have raised the money by diluting their shareholding. Today, we learnt from a private letter from the Deputy Prime Minster to the Chief Executive of Forgemasters, that the company were in fact prepared to do this.”
So why didn’t they do so?
Although the City’s preeminence is under threat because of some very stupid decisions made by the last government (notably on ceding control of regulation to our competitors), it still remains the case that Britian has the largest. most diverse, and most dynamic financial sector in Europe. The City of London is the principal centre in Europe for raising finance. As well as dozens of commercial banks, we have a huge variety of funds specialising in all aspects of company finance, from venture capital through mezzanine finance to ordinary commercial loans.
Has the Business, Innovation and Skills Select Committee ascertained why Sheffield Forgemasters were unable to raise the finance they needed from one of these many different sources?
The total lack of any realstrategy for growth is truely terrifying. The cuts were to be expected, and will be devistating when they come, but I must say I was expecting a lot more in terms of initatives for growth.