UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 355-i

HOUSE OF COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE THE

SOUTH WEST REGIONAL COMMITTEE

PROSPECTS FOR THE SOUTH WEST ECONOMY

TUESDAY 2 FEBRUARY 2010

VIV RAYNER, DAVID ROSSER, PETER SCOTT and MR. TERRY SLATER

NIGEL COSTLEY, LUCY FINDLAY, DAWN NEALE and DR. DEBORAH WATSON

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the South West Regional Committee

on Tuesday 2 February 2010

Members present:

Alison Seabeck (Chairman)

Roger Berry

Mr. David Drew

Dr. Doug Naysmith

Examination of Witnesses

Witnesses: Viv Rayner, South West Policy Unit Federation of Small Businesses, David Rosser, CBI, Peter Scott, Chief Executive, Dorset Business and South West Chambers of Commerce, and Mr. Terry Slater, EEF South West Regional Director, gave evidence.

Chairman: Thank you all for coming, and apologies for the slight delay. We have a very long report to get through. One Member has to leave to be on the Floor of the House in seven minutes, so when you first speak could you identify yourselves clearly for the purposes of the record?

Q1 Mr. Drew: I have a very simple question on something I have spent quite a lot of time on: the arguments over whether or not we should have been paying wage compensation to those people on short-time working, who are of key importance, certainly in some of our manufacturing industries. I wonder what your take is on that, as we are now hopefully coming through into the recovery stage and looking at whether we have managed to retain jobs that we had perhaps feared we would lose. How do we compare with other regions in Europe, particularly those that have arrangements for some form of wage compensation to keep people in work? To me, that is a key issue and always has been.

When I talk to people in manufacturing firms in my constituency, they are worried about how they will manage the recovery having lost staff, which is what always does for us. They turned around and said, "Look at our competitors in France and Germany, who are effectively being paid to twiddle their thumbs on the basis that when the recovery comes they will be straight back into work." That is why I argued so hard for some form of wage compensation, which we kind of did get in a pseudo way, but not completely.

Mr. Slater: If I may begin, I am the regional director of EEF for the South West, which has approximately 400 manufacturing member companies within the region. One of the things that has characterised this recession more than almost any other is the extent to which manufacturers have been very mindful of the need to retain key skills, and the extent to which they have applied very flexible and innovative practices to try to do that. There have been some quite creative short-time working arrangements. Clearly, the driver for that has been skills retention. Would it have been helpful for them to have received, for example, as in Wales, ProAct arrangements, which you are probably aware of? It would have been extremely helpful, but the main driver was not the cost but retention-the need to retain key and sometimes scarce skills, as manufacturers worked through and out of the difficult economic climate.

Q2 Mr. Drew: Is there now a worry with those companies that have retained staff? You could argue from the Treasury's point of view that that would have been deadweight. We would have been paying money to companies who would retain their staff anyway. Is the problem now that they have had to absorb the costs? We know the recovery is not going to be suddenly a case of putting the flags out, we are all there; it is going to be bumpy. There is a worry that those companies that have retained now turn round and say, "There is actually not much sign of a recovery. We had better lay off those people we hung on to because we dare not keep going as we are, otherwise everybody will be threatened." Is that a reasonable analysis?

Mr. Slater: Yes. There has been an impact on both cash flow and margin. It has made the difficulties more extreme.

Q3 Chairman: May I ask each of you whether or not you are seeing within the region evidence that we are coming out of a recession? If so, which sectors are leading and which are still struggling?

Peter Scott: I am Peter Scott, Chief Executive of the Dorset Chamber of Commerce but today I represent all the chambers of commerce across the South West region. I will try to address particularly the situation in Dorset and then pick up on some other aspects of the region.

Our economy in Dorset is dominated by the financial services sector, advanced engineering, hospitality, leisure and tourism, which to a greater or lesser extent have been victims or beneficiaries of the downturn in the economy. When things begin to pick up-and we believe there is a tendency for that to be the case-what we are smelling in Dorset is the emergence of the green shoots. We certainly do not have fields of green shoots to wade through yet. You will appreciate that, as a region, the South West-from Cornwall in the far west to Dorset in the bottom right-hand corner-is an extremely disparate grouping of counties' economies. Some industries are doing well-in Dorset the aviation, air and defence sector has continued to prosper throughout the recession-whereas those who are dependent on the disposable income of people who have been impacted by the recession, such as hospitality, leisure and tourism, have had a hard time and are looking for better prospects through 2010.

Q4 Chairman: So tourism continued to struggle despite evidence that people were holidaying in the UK rather than going abroad?

Peter Scott: The alleged staycationers-to use that terrible expression-did not materialise in droves. The balance between business tourism, if you like, the strict business user and the leisure market is an extremely complex set of interrelationships. There were price pressures on all establishments, from hotels through to leisure attractions; margins horribly squeezed, as everywhere; and intense competition from other regions within the UK and outside.

Chairman: Thank you. Terry, do you have a view?

Mr. Slater: If I may, I shall confine myself to manufacturing, as colleagues will know more about other sectors than I do. If you look at the South West in terms of manufacturing and advanced manufacturing, it's got a very different mix from most other parts of the UK, characterised by a larger than average aerospace and advanced engineering component and a larger than average defence component, which means that the picture is extremely mixed at the moment.

If you've been heavily involved in an automotive supply chain then you probably started to feel things becoming extremely difficult towards the end of 2008, and had a very difficult 2009, but you're probably looking at a position that's flattening, now. If, on the other hand, you're in the aerospace sector, you may actually be wondering why you had such a good 2009, because other parts of the manufacturing sector clearly weren't, and whether you have some difficulty still to come in 2010, because of the length of your order books; and I know some aerospace companies in the region are seeing forward order books start to diminish as we look at 2010 and 2011.

Q5 Chairman: Was there also a difference, from your experience, within the component manufacturers, between those who were producing parts which were the standard parts that have been used for years within the automotive industry, for example, and those that were at the top end-cutting edge, high precision, perhaps with greener technology being used in automotive production? Was there any difference between the companies that went to the wall and those that survived?

Mr. Slater: No. I don't think there's a fundamental difference, but I think there's much more resilience in terms of those companies that can go further up the food chain, in terms of adding value to customers, than with straightforward component manufacturers who are more at the mercy of global competition-and particularly low-wage economies, because there's limited value that they can add to the services that they provide.

I think over the last 18 months, albeit there is a slowdown in investment, in terms of investment in large capital equipment, we've seen a lot of focus on innovation in terms of product, and services, and quality and adding value, and companies trying to make themselves add more value and be more influential in terms of the relationship with customers. So a lot of those top end manufacturers have moved into high added value services, and through-life support, in addition to product.

Viv Rayner: Just to pick up on what Terry was saying, actually, cutting edge is no guarantee of success. We have members who are downsizing fast, who are at the cutting edge, and they've come across subsidised competition from Wales, being just across the border, and it is drastically undermining their businesses; so being cutting edge isn't always the defence one might like to think.

We did a major piece of research amongst our members last autumn, between the middle of September and the end of October, and at that stage South West businesses, and certainly our members, were moderately more optimistic than in the UK as a whole: 30% thought things were actually going to get better over the next 12 months, compared with 28% across the UK, and 48% thought things would remain stable, compared with 46%. So on stable or getting better, that's plus 4% for the South West.

Since then, however, the revaluation has started to kick in. As we know, the South West and London were the two regions where the total valuation, because of what had happened to property prices, was actually going to go up. I think people are aware that it's hit certain towns much worse than others, but it's also hit certain sectors.

Q6 Chairman: Which ones?

Viv Rayner: Well, again, I'm afraid, rural filling stations with shops attached, and pubs, and restaurants-guest houses. To a certain extent, talking to the valuation people, it's because they've changed their method of valuation for those outlets. They used to have a rough rule of thumb for the smaller guest houses and hotels-so much a bedroom. Now they're basing it much more on turnover. We've seen one guy; he's got a pub restaurant. He's go-ahead; he's built up a business-exactly what you'd want to see in a small business. As a result his rates have gone up from £8,000, pre-2005, to £48,000 from next March. I know that there is transitional relief, but even with that the rates have to be paid. That is a big jump, which comes straight off the bottom line. It does have an impact-why bother if the rates are going to go up?

In terms of businesses in general, the picture is mixed. We have had businesses doing well, with something like 30% of members reporting an increase in profits to one degree or another, and we have had 50% reporting a decrease. Margins are being squeezed. The sales volume is up by more than 30% so margins are being squeezed-there is no question about that. We are not sure whether we are hearing about it now because of the problems or whether it is having more impact, but we are also beginning to see unacceptable behaviour by some of the large firms.

Q7 Chairman: What sort of unacceptable behaviour? I think that you need to be a bit more specific.

Viv Rayner: Construction companies refusing to pay their subcontractors. A customer saying to their tier 1 contractor, "Do away with your tier 2 and just take on his staff to carry on doing the work."

Q8 Chairman: Has the FSB filtered that information through to the Regional Economic Task Group?

Viv Rayner: Yes, we are putting the information up but I am citing that as an example to show that cowboy behaviour that we hoped had stopped is starting to re-emerge. Of course, when money is tight a small business does not have the money to go to law, which is what it takes.

Q9 Chairman: Perversely, we had evidence in the last session that larger companies were being supportive down the chain to ensure that it was in place and everything was working.

Viv Rayner: Again, it is different sectors. They were being supportive down the car manufacturing, automotive and aerospace chains, where they are very dependent on their suppliers.

Q10 Chairman: Is it largely construction that you are talking about?

Viv Rayner: Yes. On utilities, we were very pleased to see Kent making use of the permit system on roadworks because that is another area that impacts on our members. If you have a small business in a tourism sector, appearance is very important. If utility works are going on outside and there is an argument between the contactor and the utility company, you are left with a big hole outside your front door. I think there are more instances of that because we are hearing about them a lot more.

David Rosser: I'm David Rosser, Director of the CBI for the South West region, which includes Wales. As I'm from an organisation whose members are mainly medium and large companies I am feeling under attack from my right flank.

As to evidence of coming out of the recession, I think that the South West region has probably fared relatively well compared with most other UK regions during the recession, but I think that it is much too early to say that there is widespread evidence that recovery has kicked in. Most companies that I have talked to have had their version of a falling-off-a-cliff moment at some stage over the past 18 months-different trajectories and different rates of decline-but the great majority have stabilised. Most companies looking forward to 2010 think that the market will not be that much better than it was in 2009, but, as businesses, they are probably better placed to deal with it because they have taken, by and large, tough and difficult decisions to size themselves to be better placed to cope.

Some of the industries that had the steepest decline have seen a measureable improvement-automotive is clearly one of those. There is a difference within the automotive sector. If you are producing components that predominantly go into larger vehicles, you are probably not quite as happy as someone who is producing components that go into smaller vehicles. If you are producing components that improve the energy efficiency of vehicles, you are probably feeling happier than if you are not.

In house building, we have certainly seen an improvement to levels of activity. We desperately need to see the regional spatial strategy in some shape or another signed off-

Chairman: Because of its impact on construction.

David Rosser: Or we will see it stall. Companies that are heavily exposed to selling to the public sector are probably feeling quite nervous at the moment. Construction companies are concerned that capital investment will bear the brunt of the restoration of public finances, rather than it being split with current spending.

Q11 Chairman: So is there concern about cuts to the public expenditure programme in relation to infrastructure?

David Rosser: I think there is an acceptance that we need to trim back public spending. Our concern is that capital spending, because it is politically easier to cut, will bear the brunt of that and we won't have the infrastructure of the South West region going forward, and that certainly will harm the construction industry. Clearly, companies in the defence sector are looking ahead to a defence review with great interest. There are certain signs of stabilisation in the region, some signs of improvement, but it will not feel like a recovery for a long time and some threats are on the medium-term horizon.

Q12 Roger Berry: I note that you say that there is a general acceptance of the need for public spending cuts. Do you really mean that, or do you mean that there is an expectation that it might happen?

David Rosser: No, I really mean that.

Q13 Roger Berry: The reason I ask, of course, is that the regional development agency points out that in the 10 years before the global recession, public sector spending made a very significant contribution to the South West economy in job creation and so on. The RDA has said that reductions in public spending could severely harm the regional economy. The impact, in its words, could be strongly negative. Do you agree with that assessment, despite what you have just said? If so, how can we minimise that damage, should that occur?

David Rosser: The CBI certainly believes that the restoration of the UK's public finances is necessary. If we do not do that, we are likely to see impacts on interest rates, which will affect all companies across the UK and across the South West region. Will reductions in spending have an impact on the South West region? Well, possibly. It depends on how cuts are implemented. We would strongly support preserving, as far as possible, capital investment in education, transport infrastructure and broadband infrastructure. Looking with a fresher pair of eyes at the delivery of public services, there could well be some opportunities for South West businesses whose job it is to deliver public services on behalf of the public sector by taking a fresher approach to public service delivery. There certainly are threats, I accept that. It is not inevitable that reductions would be strongly detrimental to the economy, but they could be.

Q14 Roger Berry: Do you accept that the most effective way to get the deficit down is to restore economic growth as quickly as possible?

David Rosser: Yes.

Q15 Roger Berry: And that cuts in public spending will have precisely the opposite effect?

David Rosser: Again, I think it depends on how cuts in public spending are done. The timing is clearly important. The plan for restoring the UK's public finances needs to be set out clearly and credibly for the financial markets to give us an operating environment in which all companies can prosper.

Viv Rayner: May I come in on that, because one of the forthcoming tax increases-in national insurance-is actually going to hit employment directly? Certainly our members would be very keen for that increase not to happen, or at best be deferred.

Q16 Roger Berry: So you'd like a higher level of public sector borrowing?

Viv Rayner: We haven't discussed that specifically.

Roger Berry: Well, that follows.

Viv Rayner: Well, not necessarily. It could mean taxes elsewhere-

Roger Berry: Oh, I see.

Viv Rayner: It could mean other taxes doing more. If the increase in national insurance reduces the increase in employment, have you looked at the knock-on effect on taxation and unemployment benefits? There is a very strong school of thought-we did some research-that maintains that increasing national insurance actually increases the cost of unemployment further down the line.

Roger Berry: I happen to agree with you very much. In the short term, however, it will undeniably increase public sector borrowing. Sorry, you're giving the evidence, not me. Forgive me.

David Rosser: I think the point is well made. If we try to restore the UK's financial position by tax increases, that will slow down growth. It will slow down the recovery, which is why the CBI firmly believes that spending needs to be tackled.

Q17 Roger Berry: The Government would argue that they have tried to help businesses in the South West during the difficult year and a half or so. I would like to ask your views on whether you think the Government have been doing the right thing and addressing the right priorities. If not, what should they have been doing and what should they do now?

Viv Rayner: The support through Her Majesty's Revenue and Customs was excellent. It worked well and was very much appreciated. Where there were negatives, it was because people contacted their local tax office rather than the business support line; I am afraid the local tax office did not always refer people on to the business support line. But there has been a very high level of recognition and appreciation for the service offered. Rates deferrals were slightly less appreciated, because, although they were a great help to people who had come to the end of transitional relief and were facing big increases, a lot of people's rates were going to change by only about 3% or 4%. They were a bit bemused, but we explained.

The will was there with the enterprise finance guarantee and the working capital scheme, but I am afraid that the banks really did let us down there. From our point of view, they did not follow through on the spirit of what was on offer, and they focused very hard on absolutely getting the last drop of security out of somebody before they would let the Government guarantee come into operation. If the Government had had an alternative way of transmitting that sort of help, it would have made a big difference, hence our suggestions that we really do need a post office bank and that the RDAs should be refocused on providing that kind of direct financial support. The banks have let us down badly. So yes, a lot of work was done, and it was very much appreciated.

One thing that did not work was cutting VAT. We would have preferred it not to happen because of the extra cost and work involved. We would have preferred the cut to be focused on something like the construction industry, reducing VAT there to 5% or even 0% for the refurbishment and refitting of environmental improvements and so on. There is still time to do such things. In the South West, we would have liked to see 5% on holiday accommodation and restaurant services, as in France.

Chairman: Peter, do you have a view?

Peter Scott: Our perspective, particularly that of the members of the chambers of commerce, is that it was not so much the intervention by the Government but the contrary position taken by banks that had the more deleterious effect. Against a background of the maintenance of other types of business support, such as the services provided by Business Link, businesses were at least able to maintain some kind of an overview of their terms of operation. We also feel very strongly that, although the banks have been widely pilloried-we are well aware of the consequences of their action-they must stand up and be recognised as having been a huge contributory factor to the plight of so many SMEs.

Q18 Chairman: May we briefly touch on skills in the region? Do you have a sense that, through this period, we have managed to retain the skills base in key sectors, or do you think that gaps have started to appear?

Viv Rayner: I represent the Federation of Small Businesses. I think that the gaps that we have noticed for a long time at level 3 in key areas such as construction and engineering are still very much there, and in the last few months they have started to reappear. From our point of view, we were very disappointed that what was done during foot and mouth, when EU money was used to give wage compensation to businesses that were sending staff on training, was not actually done this time. We have Train to Gain wage compensation, but it does not support cash flow. Under that scheme, you have to wait until the qualification is taken, and then you apply. It is no good if you are using it as a way to help people retain skills-a missed opportunity, there.

Q19 Chairman: Is that the only lesson that we can learn from Train to Gain? Quite a bit of the evidence suggests that it was very welcome and has helped protect some of the skills base and enhance skills. I understand the argument from small businesses-

Viv Rayner: It has also been capped at just the wrong moment. This is the other problem.

Q20 Chairman: You wouldn't want to see it go?

Viv Rayner: We wouldn't want to see it go, but it has been capped too soon. We can understand the Government's problems: you are working on a scheme for 18 months, it finally goes live, and you expect it all to happen because it's old history, as far as you're concerned. But for businesses, it has just appeared. It takes six months, a year, 18 months before it comes on their radar and they think, "That sounds really good. I could make use of that." Just as they say, "I'm interested in that," it's finished. That's what happened with Train to Gain. In the South West, lots of small businesses started getting used to it, and then it was capped just as they were starting to get involved.

Q21 Chairman: We'll take that away.

Terry, your evidence seems to suggest that the talent retention scheme is a success. What elements made it work, and how was it publicised?

Mr. Slater: That links into the comments I made earlier about the need to retain key skills for when you come out the other side, and the need to make sure that competence exists within the sector. Even before the recession, there were level 3 and technical skills shortages, and some of those still exist. The concept of talent retention was led by the need to make sure that there was still the opportunity to invest in retraining and upskilling during the recession.

The scheme has been going for a few months. It has been promoted regionally by e-mail and on websites. There are currently over 100 contacts with companies and individuals, and the scheme is looking to fill approximately 120 vacancies, so it has taken off quite well-it has been well supported. We are promoting it, other partners in the region are promoting it, and it looks to be moving ahead very successfully with supporting the process of retraining and upskilling.

Q22 Chairman: It has obviously grown very fast, as it has only been running for a couple of months.

Mr. Slater: Indeed. It's off to a very good start.

Viv Rayner: We need it.

Mr. Slater: The lesson is fundamentally that once those skills leave the sector, it's quite difficult to get them back.

Chairman: Tell me about it.

Mr. Slater: And the lead time to replace them is long.

Chairman: It takes seven to 10 years to train up submarine engineers in Plymouth.

Q23 Dr. Naysmith: You talked earlier, Viv, about cutting-edge industries, and we have quite a few of those in the South West. In fact, the RDA emphasises the importance of advanced manufacturing industries to the region, particularly aerospace and micro-electronics. We got the strategic investment fund in the Budget recently, and we are making use of it for a number of projects in the region, which you know about. Do you think we have good enough links between our universities and the different businesses and industries in the region? If not, what can we do to improve them?

Viv Rayner: No, we don't, and if there were an easy answer, I think we'd already be doing it. We understand that, from the university perspective, there are lots of small businesses, their time is short, and they are difficult to engage with. The problem is that the impression our members get is that because it's difficult, the universities don't try, and we hear that when a small member makes contact, they get dusty answers, which does not help. I think there is certainly a need for the universities to establish a system, so that whoever answers the phone has somebody to refer small businesses on to.

Q24 Dr. Naysmith: In some respects, this is a two-way process, isn't it? I know quite a lot about what happens in Rolls-Royce and Airbus in Bristol. Both sides get advantages: the industry gets good graduates, and it gets some of the work done in the universities, and vice versa, but there is an interval. How do we make sure that such work happens much more?

Viv Rayner: This is one of the reasons why we are promoting the internship scheme, which we think is wonderful, as far as the universities are concerned. We know that there will be a cost to them, but it is a wonderful loss-leader for them; they can show business what their graduates can do. We had it in the December and January newsletters, and we are just waiting for the button to be pressed. Then we will push it out to members.

Q25 Dr. Naysmith: These big firms in the supply chain go to universities when they want something. I don't know whether the universities realise that they can get something in return from small businesses.

Viv Rayner: Actually, we've had some success there. We had an approach from Exeter university, which wanted some projects for, I think, their third-year mechanical engineering students.

Dr. Naysmith: That's just the sort of thing that we want to encourage a bit more.

Viv Rayner: Yes. We put it in the newsletter, and the university was really pleased with the response that it got, which is why we did it again this year. It is starting to build, but I agree that it is something that needs working on.

Q26 Dr. Naysmith: Are there enough scientists and engineers coming in?

Viv Rayner: No.

Dr. Naysmith: Really? The universities are not producing enough. Is that it?

Viv Rayner: It's before that-it's not just at university level. We keep referring to level 3 skills in engineering and manufacturing. It's the science, engineering and maths skills at school level. We would even start earlier.

Chairman: David, do you have a view on this?

David Rosser: I think the question was: do we have enough links with universities? Clearly the answer is no, and probably always will be. The CBI strongly supports developing good working relationships between the two sectors, and we see that as key to future economic growth. There is a demand-side problem as well, though; it is not just universities failing to reach out or respond. Too many people running companies-probably in my generation-have a view of universities that is probably a little outdated now. Certainly, we talk to CBI members in the region about working with universities, and the CBI is as much in exhorting and educating mode as anything else. We are sitting down and working with two or three of the biggest universities in the region to try to look at how we can come up with opportunities to get more companies working with them.

I certainly agree with Viv on the issue of STEM skills. While the labour market is easier now, the underlying trend of a shortage of engineers, mathematicians and scientists is still there, and will show its head again shortly. While the flexibilities seen in Train to Gain have been, again, very welcome, I think we would like to see more of that, now that we are focused towards STEM skills.

Q27 Dr. Naysmith: To take the example of the National Composite Centre, which is being established in Bristol university, how can we ensure that some of the smaller firms in the region develop this carbon technology and get involved in it? Can you do that sort of thing?

David Rosser: We can certainly try. One of the most effective routes should be through the supply chain. The likes of Airbus and Rolls-Royce will undoubtedly be talking to Bristol, because they are the sorts of companies that always do. They could then push that down through the supply chain, with companies reacting to pressure from customers; I would have thought that was one of the more effective ways of doing it.

Chairman: Terry, you were nodding throughout that.

Mr. Slater: There is a regional SC21 initiative in the area of supply chains that is doing exactly what you have just described.

Peter Scott: If I may add to that, in terms of where the client base for the universities rests, many of them are outside the region. So there is no immediate visibility of what is being done by universities. Locally, Bournemouth has a client base outside the South West region and the UK. Unless those success stories are played up-it resides with the universities themselves to push that forward-we will continue to exist in splendid lack of information.

Viv Rayner: I very much support that, in terms of pushing out the success stories, because the supply chain is one route. But don't underestimate the "Eureka!" moment, when someone reads something on the business page or in the local news, and says, "That is just what will solve my problem-doing x or y."

Q28 Chairman: We get the message and we will pass it on.

The Regional Economic Task Group set up the Green Recovery Action Group. How would you assess its success or otherwise?

Viv Rayner: I actually sit on it. First, we brainstormed what could be done. Then we looked to see what else is already being done in the region. We are focusing on trying to make things happen to plug the gaps. I am frantically trying to remember some of the gaps we have identified.

Q29 Chairman: Have you identified where the priorities are, in terms of action?

Viv Rayner: Oh yes, we have been identifying them and trying to find out ways to deal with them and how to get them plugged.

Q30 Chairman: Have other members of the panel experience of the Green Recovery Action Group?

Peter Scott: Only inasmuch as we have been inspired, particularly in Dorset, to implement our own green knowledge economy programme under our multi-area agreement. There is now an overarching environmental theme, which in many respects mirrors that part of the RETG.

Q31 Roger Berry: In terms of green energy, there is constant talk about new initiatives in the South West region, whether it is tidal power in the Severn, offshore wind farms or Hinkley. Given that you said that you have experienced a problem in the supply of engineers, scientists and mathematicians, this question is primarily for Terry and David. We talk about these important non-carbon technologies, particularly in the energy field, but is the region equipped to meet the skill needs for that? I do not care if we import people from Yorkshire or Lancashire or other regions. In terms of the regional economy, these scientists have to come from somewhere. Do you perceive problems there?

Mr. Slater: I'd start by looking at the skill requirements that currently exist within advanced engineering and those that will be required in marine renewables or nuclear, and I would try to dispel the myth that they are fundamentally different. They are very common skills. Many of the skills that we will need to fill and develop jobs within the green technologies already exist. Yes, there is a transitional and developmental investment to make, but it is not huge. The fundamental problem is for private sector manufacturers to see and understand those supply-chain and market-based opportunities. There is quite a significant gap between the advanced manufacturers with the skills and the visibility of the opportunities. There is a real need to bridge that somehow.

Viv Rayner: Let me give a good example of that. One of our members in Somerset has developed a boat that is the boat of choice for servicing offshore wind farms. That is in Somerset. Its issues are the same as those of any other growing business: it needs finance, because it is growing. It also needs a water site. Waterside sites are so attractive for housing, but it needs a waterside site to build and launch the boats. That is its other big issue.

Chairman: They need to come to Plymouth.

Viv Rayner: Those skills are no different from any other boat-building skills, except the people running the business saw what was happening with wind farms, looked at the boats they needed and went for it.

David Rosser: Terry thinks it is about better visibility, particularly with regard to the skills issues in the sectors he mentioned. Our members tell us the biggest barrier to pressing ahead with some of those investments is a clear and consistent Government policy on energy, and getting the Infrastructure Planning Commission to get its broad policy statements sorted out. Once we get those pieces of the jigsaw in place, we will find the skills to build things and to run them. Whether they are imported or not-a lot of the work forces on construction sites are pretty itinerant-that will get those things built. At the moment, that is a third-order issue behind setting in place the consistent market framework that will allow people to run these things as businesses.

Q32 Roger Berry: Another area is the digital economy and where the region stands on that. The RDA is passionate about the next generation being crucial for the region. What is your take on that?

Peter Scott: It is absolutely imperative from our perspective in Dorset, particularly, because we have the focus of what is happening in the 2012 Olympics. Weymouth and Portland will allegedly be supported by 21st century ultra high-speed broadband provision by BT. But it should not end there, either in terms of the cut-off point or the geography. Unless we can ensure high-speed broadband provision across the county and across the region, our region will be at a competitive disadvantage within the UK and internationally.

Let's not constrain ourselves with 100-megabit speed; we are talking about something much faster than that. Let's not fall into the M25 trap: let's not build ourselves six lanes in each direction now, because, sure as heck, the demand will be there, in terms of people who want to pump vast quantities of data and voice communications down those lines, such as home workers. There will be demand for anything that can be done to help reduce the carbon footprint. Collectively, those are some compelling reasons why we need better broadband connectivity.

Viv Rayner: In terms of competitiveness, small businesses really need broadband, and we need it fast. There are so many things that you can do on broadband-and do quickly and effectively. If you don't have it, you are that much slower. You are that much less competitive. That is very much the case in the rural areas, where very often broadband can be the link. It can be the thing that provides the services-the business-and makes up for the fact that you are separated from the population centres.

Q33 Roger Berry: Given our interesting conversation about public spending earlier, you have all put in a bid for spending by somebody. Are we talking about the Government or the private sector organising all this?

Viv Rayner: The experience of actnow in Cornwall, which had the EU money, is that if you get a proper marketing programme, with a way for people to register that they want fast broadband, you can enable people to create the market and therefore draw down the private sector spend. That has been the experience in Cornwall, but I don't think we have learned enough from that to replicate it elsewhere.

Q34 Chairman: Would you also take a view that, given our peripherality issues, and the far South West in particular going down to Cornwall, one of the cheapest and quickest ways of bringing the South West and Cornwall to London is by having a fast digital link and probably linking into the cable that goes transatlantic along the South West coast?

Viv Rayner: Yes, very much so.

Mr. Slater: Yes.

Q35 Chairman: So you are wholly supportive of that and would want to see it as an RDA priority?

David Rosser: What is the cost? I strongly support this. I think that for any peripheral, rural economy, broadband is going to be as key as road in the future, if it is not already. But it is the last third.

Q36 Chairman: But it's going to be a lot cheaper than putting in a new rail line, probably?

David Rosser: The point about public spending is very real. The private sector has invested in getting on for 90% coverage to the current 2 megabits broadband speed. Will it do the last 10%? No. [Interruption.] When you get to the next generation of broadband, it will be even more of an issue.

Chairman: There is disagreement with the panel here.

Viv Rayner: We haven't got 90% in the South West. In the South West we've only got 80% and we are the English region that is worst off.

Roger Berry: That's the point that David and I are trying to make

David Rosser: There are very real issues here about how it is funded.

Q37 Chairman: We are getting a bit short of time. We will move to rural business. Do you feel that rural businesses have received enough support from Government in the current crisis? Or are their problems not necessarily any different from those of a small business based in an inner-city area? Do you think they should have a greater priority?

Viv Rayner: The challenge for small businesses is to make sure they actually get the support that they need. When money is tight, the focus is on getting the bangs for the buck, so delivery has a tendency to be in the urban areas where it is easy. That is why I was very pleased to see those results-the high levels of satisfaction that have been achieved in Dorset, where members seem very pleased with the Business Link delivery there. In a way, that is one of the reasons why transport and broadband are so important. Looking at the South West, we do more business with the rest of the UK than the rest of the UK does, underlining the importance of the internet to us, and of transport to get the goods there, so it is important. When I see us looking at spending £300 million on a rail link to Glasgow airport, I think, "What could we do with that money, say, between Newton Abbot and Torbay?" It underlines the sort of difference we are talking about.

Q38 Chairman: Do people have a view about Business Link in relation to rural business? Do you think it has been effective?

Peter Scott: Speaking from a slightly historical perspective, Business Link has run a number of rural business initiatives over the years, and they have been successful. What has happened in the intervening time is that the nature of rural businesses has changed. We sometimes use interchangeably small businesses and rural businesses, assuming that they are the same thing. That is not necessarily the case. There are some examples of quite large, growing and successful rural businesses that are not necessarily small. So as long as we do not think of geography as being the limiting factor but the need of a business wherever it is based, transportation, connectivity and local skills provision are all vital in that respect.

Q39 Chairman: We are almost there. I have one final question on the role of UK Trade & Investment. There was criticism in some evidence that companies were not receiving the support and assistance they needed in order to build export markets, particularly. Have any of you picked any of that up?

Viv Rayner: Yes. Again, it is the micro-business. I will give you an example. One of the incentives is Passport to Export. They match the costs of producing leaflets. The feedback I have had from my members is, "If I am very small and I am starting exporting, I am not going to pay for a large run of print leaflets. I am going to get them designed so that I can print them off on a decent printer, on a computer", so it is not really an effective form of support. This is the problem with a lot of the initiatives. They are not geared to the micro-business; they are geared to the business with 25 or more staff. And yet we have a lot of much smaller businesses, which can, given the right amount of support at the right time, successfully export, but I think we are missing a trick there, particularly in the South West.

Q40 Chairman: So the Government were right in a sense to highlight the fact that there was a failure in this area, and clearly more needs to be done?

Viv Rayner: Yes. And we would very much like to work with people doing it.

Peter Scott: Given that the South West region is recognised as being the worst performing region in England as far as export is concerned, as long as UK Trade & Investment-we have a good working relationship with UK Trade & Investment South West-have sufficient flexibility within their programmes to suit local need and they are not constrained by a top-down approach that says, "All of Britain will do X", then I think we will have some light at the end of the tunnel.

Q41 Chairman: Do you still have a sense that that is the case?

Peter Scott: To a certain extent it is. Certainly over the past several years, while the focus was very much on the BRIC countries, it was wholly inappropriate for the needs of some of the smaller businesses across the South West region.

Mr. Slater: I have run a number of companies with positive experiences of dealings with UKTI, but I do not have the micros.

Chairman: It is interesting to hear your comments. I thank you all very much for coming along to give evidence.

Examination of Witnesses

Witnesses: Nigel Costley, Regional Secretary, South West TUC, Lucy Findlay, Regional Infrastructure for Social Enterprise (RISE), Dawn Neale, Sector Skills Manager, Alliance of Sector Skills Councils, and Dr. Deborah Watson, Deputy Executive Director, Universities South West, gave evidence.

Q42 Chairman: There is an outside chance that if there is a vote in the Committee of which I am also a member, I may have to adjourn this sitting, rush down the corridor and vote. If a member of this Committee is dutifully speaking on the Floor of the House at 5 o'clock, we will have to cut the session a bit shorter than we would ideally have liked. If answers could be kept as short as possible, without compromising the detail, that would be helpful. May we have your individual views on the prospects for the South West economy? Dawn, will you start please?

Dawn Neale: I represent the Alliance of Sector Skills Councils in the South West. There have been significant, innovative and creative solutions to address economic growth, working with key sectors. That will probably come out during our discussions.

Nigel Costley: We are pleased with the way in which the Government have stimulated the economy and prioritised young people with the Future Jobs Fund. I am sure that we can touch on the task group. Our concern for the future is about the public sector. We do not want to see a private sector recession just as it appears to be starting to claw its way out being pushed back by a public sector-led recession in particularly vulnerable places of the likes of Cornwall, the economy of which is heavily skewed towards the public sector.

Dr. Watson: I am Dr. Deborah Watson from Universities South West, the regional universities association. We are pleased that our work with businesses seems to be seen in a positive light at the moment, but obviously we have concerns about the impact of public sector funding circumstances on university funding. There has been a lot about that recently.

Chairman: I am sure we will come back to that later.

Lucy Findlay: I am Lucy Findlay from RISE. I wish to talk about social enterprise and businesses trading for social and environmental purposes. Social enterprises have weathered the recession pretty well and that is partly because of the way that they trade. They fill the gaps from which the private sector might have removed itself. We are keen to see the social enterprise business model move ahead and from strength to strength because we think that it can bring an incredible amount to potential recovery for the South West.

Q43 Chairman: Each of you has talked about some of the key factors in maintaining the recovery. In its evidence, the RDA identified some structural weaknesses in the South West. We have touched on gaps in international trade with previous witnesses, as well as skills, mismatches and infrastructure gaps. Do you recognise those problems? If so, which are the most serious or are they all serious in their own right? Are there some that jump out at you and say, "We really have got to fix this first"?

Dr. Watson: There was discussion earlier about the need for STEM skills. A gap was identified at level 3, but we believe from the university perspective that it is at level 3 and above. There are high-level skills needs in the region as well. You have an outflow of graduates from the South West region, particularly to London and the south-east, so you have a graduate retention issue. We need to use graduates better in the businesses in the South West region to support the regional economy. So I think that from a skills perspective, yes there is an issue there. It is across a number of sectors, and we need to support them, and support the graduate numbers in the region. The internship scheme was mentioned earlier; again, we are actively engaging with the Federation of Small Businesses and other regional partners to get interns into the regional economy. We had an issue last year and we have it again this year about student numbers-the national increase in student applications and its impact on longer-term youth unemployment numbers if there are no increases in Government numbers for students.

In terms of infrastructure and activities such as developing science parks, we are looking to develop one in the Exeter area, and science park facilities in the Bristol area. Again, such things impact on the ability of universities working with business to spin out and develop prospective routes. So, there is a broader range of impacts as well.

Q44 Chairman: Okay. Dawn, you are in the skills sector, do you want to comment on that?

Dawn Neale: There is a lot of research work going on to articulate the specific skills needs and gaps. I think that will certainly be useful for partners. For instance, ConstructionSkills has a Future Skills Unit, which is specifically looking at construction skills gaps in the context of the low-carbon technology and industries that are needed. The manufacturing sector is obviously working closely with employers to articulate skills needs and demands, and is working on key initiatives such as the 21 sector skills councils project. I think various sectors are tackling things in different ways. To add to that, in terms of low-carbon research we are looking at marine energy and the low-carbon economic area as a whole, and at what it means to a number of sectors. That will be a cross-sector piece of work.

Q45 Chairman: Is the growing interest in and emphasis on the low-carbon sector one of the outcomes of the recession, or was that happening anyway?

Dawn Neale: I think it came about through New Industry, New Jobs really; people refocused activity to look specifically at the NINJ sectors, so there already was some work on clustering with sector skills councils and footprints. The five manufacturing sector skills councils are working closely together, but the NINJ report emphasised that, and then people refocused. For instance, we used to have a built environment alliance group, which was then refocused to look at the whole of low carbon.

Nigel Costley: I think the low-carbon economy and the need to meet the targets presents the South West with huge challenges, but massive opportunities. We are in a fairly unique period, when we can foresee the future, because we have to meet the targets for our energy production and conservation. The South West is going to be dotted, especially along the Severn, with massive engineering projects: the two nuclear new builds, if they come off; the Atlantic Array wind farm; the Wave Hub and the marine initiatives; and of course the big one, which would be whatever we do with the barrage, lagoon, or tidal slow technologies. All those will require massive amounts of construction labour at different times. They will require civil engineering methods and techniques at different times. I submit that now is the time when we need a regional economic leadership that is going to co-ordinate these things and put the skills in place. The free market won't-can't-provide that in a timely way. If we don't get it right-I caught the end of some of the previous sessions-the South West will be the hostel for itinerant construction workers, rather than the base for a really secure and prosperous change in the way in which the economy has been skewed to low pay and poor conditions.

Q46 Chairman: So, from your perspective, the risk of missing this huge opportunity that has been presented to the South West is about lack of regional leadership at the top.

Nigel Costley: I think so, but it is not just a question of will; there has to be the authority and the means to perform that leadership role. It does not necessarily need finance because a lot of the projects will be privately financed, but the private energy providers that are building the new nuclear, for example, will be focused on their own priorities. I am sure that Hinkley will be prioritising Hinkley, not Oldbury, which is going to be built by a rival. Somebody somewhere has to make sure that these work together in the public interest.

On shipping, if the barrage was built, it would require a whole fleet of custom-built ships and turbines, the like of which the world has never seen in terms of such a big order. The potential to spin off into the supply chain is huge and a lot of the same skills and companies will be required for all those projects. Someone has to co-ordinate.

Q47 Roger Berry: Who should that someone be?

Nigel Costley: I would suggest that you have to have a regional agency. I'm no longer on the board of the RDA, so I can say that.

Q48 Roger Berry: Is it an RDA-type organisation or the RDA?

Nigel Costley: It is obviously regionally focused. A lot of the projects, unlike the huge build of the Olympics in the middle of a population centre, will be in the centre of nowhere-on the side of the Severn estuary in the middle of Somerset. They will need strategic thinking about how the links will be made. I know that EDF is already thinking about park-and-ride facilities on motorway junctions to get workers from A to B. How are we going to build in apprenticeships to prepare for the future? It is actually quite exciting.

I put some warnings in my submission about a lot of these new jobs and new skills. We need to think through the consequences of having thousands of new jobs, almost all of which are going to be for blokes unless we're careful. We need to think about the equalities agenda and how we get girls into apprenticeships so we give people the skills and the balance required.

Q49 Roger Berry: Nigel, to press you a bit on leadership, is the RDA capable of doing the job or do we need something different and, if so, what would it look like? Would it have more direct involvement from, for example, local authorities or sub-regional groups?

Nigel Costley: Well, I think that you need clout and somebody with the authority to bring these people together. Some of these private enterprises are massive global operations that might ignore a regional body, so it will need clout. It will need partnerships. Small firms in Somerset may want to work on EDF's new nuclear plant at Hinkley, but it says that in France it only goes down two tiers of supply chain and the minimum contract is £12 million. Viv's members are not going to stand a chance unless they start thinking about joint ventures, partnerships with other firms-either in the UK or abroad-and start preparing and thinking creatively about that now, let alone about the skills supply.

With the big construction firms, I think that we have had a mixed bag from our experience of the Olympics. All the best intentions of the top tier and the main contractors get lost as the fragmented nature of subcontracting starts to have its way. We do not want to see the South West being the centre of some of the kind of disputes that we have seen on some of the big civil engineering construction sites around the country.

Q50 Roger Berry: May I ask a quick question about broadband? There is a wide discrepancy in the region over broadband access-much wider than in many other regions. It is a very disparate region, as we all know. How serious do you think that is? Is it just that people think, "The faster, the better" or is there a serious problem, and faster is significantly better so we should start catching up? How do your members find it, Lucy?

Lucy Findlay: It is probably an issue, especially for some of the more remote social enterprises.

Going back to some of the skills issues, social enterprises join up low carbon with the community agenda. I think we quite often miss that trick, because we think just down a purely environmental route. There is a real gap in terms of thinking laterally around leadership skills-not just business departments in our universities, but also architecture, for example. I went to talk to a group of architects called Architecture sans Frontières, who were working at the Eden Project. They were looking at developing low-carbon alternatives to construction, but then linking that in very closely with local communities. The two have to go hand in hand. We often forget that aspect. To be able to sustain ourselves into the future, we need to engage with local communities, and we need them to find those business solutions, maybe working with some of those professionals.

Sorry, that doesn't answer your question about broadband. We have got social enterprises that are working on that agenda, particularly helping groups access it.

Q51 Roger Berry: Who would they lobby? Everybody wants access to broadband. Okay, great. Who do you lobby? Are we lobbying the private companies? Are we lobbying Government? Who are we lobbying for the money?

Dr. Watson: I guess if I started to lobby I would approach the regional development agency in the first instance, because I know that work is happening on that. From an educational perspective, universities tend to be networked through their own systems. From that perspective, broadband for the community is not an issue, but for remote learners-people engaged in non-traditional learning in their own time from work, or from home-actually having good broadband access will become a much greater requirement because the content requires a greater bandwidth. As the content continues to develop, you will have to continue to develop that broadband infrastructure. It becomes absolutely critical for all of us just to do our internet shopping, never mind internet planning to take the skills agenda forward. If we are genuine about upskilling the current work force at all levels, then enabling them to do that from remote access becomes very important.

Q52 Dr. Naysmith: I just wanted to ask a couple of questions about why it is that when you survey your members they seem to be more optimistic about coming out of recession than other kinds of businesses. Also, you seem to have been more successful as well, performing better than other small and medium-sized enterprises. Why is that?

Lucy Findlay: Yes; I think it is probably the markets that they work in. A lot of them might be working in deprived communities and filling that gap where the market perhaps has not traditionally provided. They are not motivated by shareholder profit; they are motivated by the social and environmental aims of that organisation. They have found that that is an opportunity for them and they have found that there are particular gaps in the market. Certainly, we have seen a number of our social enterprises being able to exploit some of those gaps in the current economic climate. The feedback that we have been getting is that, yes, it's hard times and we've seen a couple of social enterprises fall by the wayside, but on the whole they seem to have-it probably is about being motivated by something other than just pure profit motivation.

Q53 Dr. Naysmith: Do regional bodies take your members seriously enough, if they are looking for assistance?

Lucy Findlay: I think we don't really get taken seriously enough. We get lumped in with the charitable sector. We are a business. First and foremost, social enterprises are businesses but they are trading for people and planet. I quite often say that you would not call the Co-operative Group, for example, a charity. We do tend to get lumbered in with the volunteering agenda.

There is a huge opportunity, given that the general public are increasingly aware of more ethical options. People will be prepared to buy from businesses that have different types of motivation. There is a lot of scepticism; the reason we entered the recession was because of certain behaviours. Social enterprise can provide some of the solution and can teach some of the mainstream businesses lessons from that perspective, too.

Q54 Dr. Naysmith: How about going the other way? How about local authorities or trade unions? Do you and Nigel ever get together?

Lucy Findlay: Yes. We certainly do. We are coming to it as allies from the same agenda.

Q55 Dr. Naysmith: A lot of your members operate in rural areas. Are there any special or particular points that are causing problems that you want to make on their behalf?

Lucy Findlay: There is obviously the issue of being more remote. We quite often see bigger social enterprises, because they are increasing in size, having more business success, and there are a lot of strong support organisations based in the more deprived areas. We have been doing quite a lot of work to ensure that, if social enterprises are in remote rural communities, they have access to the same sort of support that you might get in an urban area. We have done a lot of work with the RDA and Business Link to ensure that that is the case.

Q56 Dr. Naysmith: Are Business Link and the RDA both helpful?

Lucy Findlay: Yes. I think that of all the regions, we have been the most successful in terms of remodelling the offering for social enterprises to ensure that it is useful. Quite often when a business comes for support from Business Link, the Business Link adviser would not recognise it as a business, because it is not necessarily saying the traditional things that a business might. We have specialists working on that. We have had quite a good relationship with the RDA and Business Link around developing that.

Dr. Naysmith: Good. Nigel, did you want to say something?

Nigel Costley: Yes. On many of these issues we are pushing up against the limits of what the free market can achieve. I think the future of rural communities is dependent on social enterprise, co-operative models. Farming has long recognised the value of co-operation in order to do the job. Many rural shops and businesses have to rely on a degree of social enterprise, if that is the right expression, or co-operation; otherwise, they do not survive. It is the same with housing and other forms. Although I think the RDA has a good record, it could do more in pushing that particular agenda.

Lucy Findlay: The other alternative is to get it into the media as well. We have been successful in getting a community shop on "The Archers".

Q57 Dr. Naysmith: Deborah, there has been a strong increase in student applications to universities in the South West. Do you think that is because you run such excellent courses, or is it because school leavers are finding it hard to get a job so they are postponing getting a job and coming to study?

Dr. Watson: I think there are a number of underlying factors. Yes, of course we run wonderful courses in the South West.

Dr. Naysmith: Roger and I used to teach on some of them.

Roger Berry: So we agree.

Dr. Watson: Obviously, there is an increase in the number of applicants from the younger cohort because of the economic situation at the moment. You also have an increase in the number of older applicants, people moving into education from the older work force.

Q58 Dr. Naysmith: So what are the resource implications for higher education and FE centres in the region? I know your vice-chancellor has been saying quite a lot about this.

Dr. Watson: Yes, our vice-chancellor has said quite a lot, so I guess I should be careful about what I say. In a sense the student number allocation is fixed. So in one way there isn't an implication in terms of the number of students that will be taken on, but there is an implication in the number of students who won't be taken on. It is going to be an extremely competitive year in terms of getting into university, as it was last year. Unless there is a way of increasing that student number in a funded way, obviously no more students will be taken on. So the impact is on the unemployment figures potentially, rather than on the student numbers.

Q59Dr. Naysmith: Why was the bid for economic challenge investment funds unsuccessful?

Dr. Watson: In terms of the regional bid?

Dr. Naysmith: Yes.

Dr. Watson: As a region, many of the institutions did get their individual ECIF bids. The regional bid was not deemed worthy of funding.

Q60 Dr. Naysmith: Have you any idea why? Is there any feedback on that?

Dr. Watson: No particularly strong feedback has been received on that. What we have tried to do in the region is draw together the individual institutions' ECIF activities and provide an overarching framework from Universities South West's perspective to feed into things like the regional economic task group and we have fed reports to that group on a number of occasions over the last year. We also feed in nationally, through HEFCE and Universities UK, data on what is happening in the region from a university perspective. So the regional ECIF application may not have happened, but there is still a lot of activity. We have also been working very closely with Jobcentre Plus over the last year delivering some pilot training for professional executives. That happened last summer and I believe that is due to be rolled out through an invitation to tender imminently.

Q61 Dr. Naysmith: I was going to ask you about that and the links between Jobcentre Plus and the universities, particularly in the light of graduate unemployment. I went to my local jobcentre less than two years ago, and as I used to be a scientist, I checked on the computer how many scientific vacancies there were. There was not a single one in the middle of Bristol. I hope that that sort of thing has improved today.

Dr. Watson: In a sense, Jobcentre Plus's database does not tend to hold those sorts of job adverts. What we have been doing regionally, in terms of the graduate market, is Gradsouthwest.com, which is the region's vacancy service run by the region's universities. At the moment, it has more than 1,000 vacancies online for new and recent graduates. There are 40,000 registered students and graduates, and we are driving a lot of regional activity through that. The internship scheme that is Government funded together with the FSB, which Viv mentioned earlier, is literally about to go live. Viv said that we were waiting on it. Gradsouthwest's pages went up two days ago, and we are waiting to press the go on media release this week.

Q62 Dr. Naysmith: So is the relationship a good one?

Dr. Watson: I would say that the relationship with Jobcentre Plus is at two levels. There is the regional level, where I have contacts with the regional officers in Jobcentre Plus. I was discussing with them only yesterday how we got the internship message out to unemployed graduates who might not know about it from our marketing, and we are going to do that through their district level staff on a region-wide basis. There is then activity on the ground between universities and jobcentres in their locality. Some of the work from the pilot over the summer has developed those relationships a lot more. Some universities are involved in their regional action forces as well.

Q63 Dr. Naysmith: Can we do more to help graduates to start up their own businesses and become self-employed?

Dr. Watson: Yes. There have been a number of entrepreneurship programmes running in the universities for quite a few years now, funded under HEFCE's HEIF programmes or from the RDA. We have a programme at the moment-the Knowledge Escalator-which helps fund entrepreneurship activities so that graduates are coming out of universities with the skills that would enable them to do that. Over the past couple of years we have been working closely with the NCGE and we are about the launch a creative industries university enterprise network as well with NCGE and Knowledge Escalator funding. We are working with a whole range of different partners. This is very much partnership working in terms of how we make all these activities happen across the South West region between institutions.

Q64 Chairman: Does RISE get involved with assisting graduates in moving into social enterprises?

Lucy Findlay: Yes, we have done, and I have gone along and talked to graduates, but my view is that it needs to be embedded as a business model so that when you are teaching graduates or undergraduates about business, part of that education is about different business models. I think that that is often where we miss a trick-it is not embedded into the business programme.

Q65 Chairman: A lot of graduates are not on specifically business-orientated programmes. They have wonderfully whizzy ideas, but where do they go? How are they picked up?

Lucy Findlay: Yes. The other thing is that, basically, you need to be able to get those ideas and pick up ideas from other sources, as I was saying about architecture. I come from an urban planning background. Increasingly, we are looking at the different disciplines and how we tap into those people who might be social entrepreneurs but will not necessarily see the straight business studies route as the way that they might get involved. They might not even come across it until later on in life. It is about how we identify those people at an early juncture. Certainly, from a business studies point of view, we often find that people end up going into corporate social responsibility, but if they hear about social enterprise they say, "Actually, that is what I want to do"-but they never hear about it.

Dr. Watson: I think that corporate social responsibility is an interesting area in which all of the region's universities have, institutionally, been taking a much greater role in over the past three years. We have done some work on that regionally. I am working with Business in the Community, and there is some national work as well on that. So, universities, as organisations, are taking a much stronger role in that, and also through some of their courses. There are interactions between the social enterprise community and universities. I am aware of some spin-out activity at one institution that is tied up with some social enterprise work.

Lucy Findlay: Yes.

Dr. Watson: So, there is a lot of that going on. There is a very positive picture in terms of what universities are trying to do to enable graduates to come out into the work force in an employable way. They are employable people-whether that means employing themselves to set up their own business. The support is in place in institutions, in terms of both training and incubation space. Many of the institutions now have incubation space on campus or in their localities, not only for their own staff and students, but for other local companies to work with them. Those incubation spaces start to grow the next generation of high-tech businesses.

Lucy Findlay: We have seen examples of university-led, high-tech businesses that are interested in different business models as well. You might get people within universities setting up a co-operative or social enterprise.

Q66 Chairman: How important are i-nets, in terms of disseminating good practice, ideas and information? Universities are setting these up; the RDA is setting one up, I think.

Dr. Watson: I was going to turn your question around, in the sense that I have no idea how valuable they are, because they do not exist yet-they are being created. I would hope that they would provide value by making some of the communication between the various different partners flow in a more coherent, managed way, which would help to support these areas. What you are doing with each of the i-nets is bringing Business Link, universities, sectoral business organisations and others together through one network. If you are networking and bringing those partners together, I think you will get good outcomes-I hope you will.

Q67 Chairman: But are you confident that they work?

Dr. Watson: I cannot say how good they are, because they do not exist yet.

Q68 Chairman: Okay.

As we bring this session to a close, do you have a view-each of you can answer-on whether the region will be able to retain the skills it needs, particularly in terms of low-carbon technology and advanced manufacturing? Do you think we will come out of the recession with a strong enough skills base to build on?

Nigel Costley: I do think we need to be brave and bold at the moment. In terms of the low-carbon agenda, it is not just the energy generators that will require lots of money and skills. The whole question about domestic energy refit is a huge opportunity for us, but we haven't got it right in my view-it is still not coherent and together; it is patchy. We know that, to meet the targets, the Energy Savings Trust scenarios would point to every house having their loft insulated. Every wall cavity that can be insulated has to be done, and then you have to move on to the harder stuff of solar and biomass. You can't do that at the moment by pepper-potting and relying on people to apply for grants. The suppliers are only interested if you have a nice bare loft. If you have a lot of clutter in it, they don't want to know, and if it is an awkward cavity, they don't want to fill it. It has got to be done street by street and house by house holistically. There were local authorities that were doing it-the Kirklees model is often thrown back at us as an example.

It needs a bit of a push-leadership and political will-and we need to crack on. That would generate a lot more jobs and a good range of them, from basic entry-level jobs through to quite highly skilled jobs through to advisers. Again, it's the limit of the private sector to deliver some of these joined-up approaches. It's a bit of an irony, I think, that Labour came to power and had to come to terms with the privatisation agenda of the previous era, and the next Government are going to have to face up to the fact that the public sector has to intervene much more.

Q69 Chairman: Let us come back to leadership. Dawn, do you want to come in?

Dawn Neale: I think a lot of sectors have tackled things individually. Linking on to what Nigel was saying, for instance, SummitSkills is looking at renewables and how to upskill plumbers. It's about looking at the existing skills base so that we can extend skills, and we have an advanced project in the South West to look at STEM skills, which is cross-sector based. So there are a lot of initiatives, projects and activity in the region. I think we have made a good start.

Q70 Chairman: Is there enough coherence across the region?

Dawn Neale: Between the RDA, the regional employment and skills board, and all the partnership approaches that we have, I think that we are quite successful in the region with partnership approach.

Chairman: Roger, do you want to come to your question?

Q71 Roger Berry: A quick question on life sciences. How good are the prospects for life sciences in our region?

Dr. Watson: On biomedical life sciences, there has been quite a lot of work between two medical schools from the region over the last couple of years. We combined forces to bid for an academic health science centre last year, but we were not successful. One of the issues for the South West as a region in that type of activity is that if you are competing with the large medical schools in London, although we have very significant expertise, it is very hard in our rural disparate economy and geography to compete with the urban, London-centric medical world. We were unsuccessful in that bid, but just recently we were successful in a joint bid between the two medical schools and some of the other universities in receiving funding for a health education and innovation cluster. That was literally launched in the past few weeks, and it is looking at how we get biomedical expertise from both the NHS and the region's universities to innovate in and develop the region.

Q72 Roger Berry: I was going to ask about that. How well does NHS South West work with the relevant universities?

Dr. Watson: I think there is a strong relationship. The chief executive of NHS South West sits on the South West universities board. We have a joint regional grouping that meets several times a year to look at work force planning, research and other issues on quality improvement and aspects of the NHS agenda, as well as research and training aspects of the HE agenda, where those two overlap. One of the region's vice chancellors sits on the board of the strategic health authority. There is quite strong overlap and quite good working between various institutions. The medical schools are working together. The allied health profession schools share a number of activities and talk on a regular basis. It is very well joined-up within the South West region.

Q73 Roger Berry: This might seem a daft question as the answer might be obvious, but just for the record, would reductions in public spending put this at risk?

Dr. Watson: Yes.

Chairman: A short answer.

Dr. Watson: It's true.

Q74 Roger Berry: How seriously?

Dr. Watson: If we focus on, say, health research into the large medical schools that are currently urban-based, we would undermine the ability to have that capacity in a region like the South West. We need to look at different models for delivery in the South West. No one medical school would have stood a chance of standing on its own. It had to put together a partnership model. It had to put together a distributive model to try to make something really work in the South West. On one occasion, it did not come off. On the second occasion, it did. We need to have a moment when the policy is formulated, but that allows slightly different models that would enable it to work in the South West region.

Roger Berry: Thank you.

Chairman: Thank you very much for coming. We have appreciated it. It will help us in our questions to Ministers later.