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

HOUSE OF COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE THE

SOUTH WEST REGIONAL COMMITTEE

PROSPECTS FOR THE SOUTH WEST ECONOMY

MONDAY 22 FEBRUARY 2010

COUNCILLOR TIM CARROLL, JANE HENDERSON, NIGEL JUMP and ADRIAN WELSH

JIM KNIGHT MP

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the South West Regional Committee

on Monday 22 February 2010

Members present:

Alison Seabeck (Chairman)

Roger Berry

Mr. David Drew

Dr. Doug Naysmith

Examination of Witnesses

Witnesses: Councillor Tim Carroll, Deputy Chairman of the Strategic Leaders Board and Leader of South Somerset District Council, Jane Henderson, Chief Executive, South West Regional Development Agency, Nigel Jump, Chief Economist, South West Regional Development Agency and Regional Economic Task Group, and Adrian Welsh, Environment, Planning and Economy Manager, Cornwall Council, gave evidence.

Q75 Chairman: Thank you all very much for coming. Perhaps I could ask some opening questions, but will you prefix your answer with a brief introduction, saying who you are and your name, because that helps the reporters to pick up different voices? What is your view at the moment of where the South West is in relation to the rest of the UK, in terms of coming out of the recession? Is it coming out of the recession, and if it is, which sectors in the South West are leading the way? Jane, do you want to kick off from the regional development agency's perspective?

Jane Henderson: I'm Jane Henderson, chief executive of the RDA. On my right is Nigel Jump, our chief economist, to whom I will defer very shortly. Perhaps I could mention that behind him is Ian Piper, who is here to swap places with Nigel when we come to questions about regeneration and the rural development programme for England, if you have any.

Chairman: Hang on a second while I check with the Clerk whether that is allowed. What normally happens is that if someone sits behind, they may pass notes, if necessary.

Jane Henderson: That's fine. To return to your question, as was the case in previous recessions, the South West was a bit slower to move into recession and has not moved in as deeply or as sharply as some other regions, but we are beginning to see early signs that we may be slower in coming out of it than the UK generally. Again, that is a pattern that we have seen before, but in terms of what that means in sectors, and on the details, Nigel will reply.

Nigel Jump: I am Nigel Jump, chief economist for the South West regional development agency. As Jane said, we have had a relatively mild recession. That does not mean that there has not been any pain. There has been, and particular parts of the region have suffered particularly badly, whereas others have suffered relatively less. It's a big region, as you know, and it is difficult to give a simple answer.

None the less, looking forward, the sectors that are leading us out of recession are, in essence, in manufacturing-those competitive businesses that have access to good export markets-and, to some extent, some of the services. Retailing had a good end to the year, but it was not so good in January. It's a very mixed picture, depending on which part of the region you are talking about.

Q76 Chairman: You mentioned good export markets. One of the key findings that came out of the evidence that we got suggested that we weren't exporting well from the South West, and that we were considerably down on other regions. How does that fit with your last comment?

Nigel Jump: There is a structural question and a cyclical question. The structural question is around the South West not being good at exporting, but we have some very strong elements of exporting, particularly in aerospace and some of the creative media-in some of those types of sectors. Again, it is difficult to generalise. Generally, we are not an exporting region, but we have some very strong parts, and those strong parts are benefiting from renewed growth in China and the far east, in Europe to a lesser extent, and in the US to some extent.

Q77 Chairman: Okay. Adrian and Tim, you are much more from the local government side of things. How do you view where the South West is?

Tim Carroll: In terms of recession and recovery, Chairman, as Nigel rightly said, the South West is characterised by a lag behind the other regions. It is quite obviously the profile-the characteristic-of the South West that it has a lot of micro-businesses, but you have to remember that they actually comprise supply chains for people like Westland, British Aerospace and so on. It's early days, more than anything else. I am surprised at the resilience that a lot of those organisations are showing.

I apologise, Chairman, for not having introduced myself. I am Tim Carroll, leader of South Somerset council and vice-chairman of the South West Strategic Leaders Board.

Adrian Welsh: I'm Adrian Welsh, transport policy manager for Cornwall council. I certainly concur with the previous views about the South West generally. Cornwall has specific issues, having one of the lowest productivity rates in the country, and while in the first part of the decade it showed notable improvement above the average, that has certainly slowed up since the recession kicked in. Clearly, Cornwall has a heavy reliance on public sector businesses, so part of our concern for the future is about what will happen next, in terms of possible funding cuts and so on.

Q78 Chairman: It is interesting that you are talking about the South West being quite reliant on public sector jobs. Some fairly high-profile individuals have commented that we are top-heavy with public sector jobs, yet it is difficult to see how the South West could maintain its current wage levels if any of them were removed, or if we did not encourage further movement of civil service jobs out of London to the regions as a result of, for example, the Smith review, which I understand suggests doing that. I gather that the South West has actually dropped in relation to other regions. Earnings growth has been slower in the South West. Would you want some of the public sector jobs that are being identified to move to the South West, and if so, where should they go?

Jane Henderson: To take elements of the question, Chairman, you are right about the dependence on public sector jobs; as you go down the peninsula, that becomes stronger. I think it's quite interesting, in terms of the impact of the recession, that some of the rural counties that are more dependent on public sector jobs have so far held up better than our cities, but that position may change if public sector jobs are reduced significantly, taking income out of those areas. It is indeed a concern, and, clearly, more public sector jobs moving into the region would have an offsetting effect that would be very welcome.

In terms of where the jobs should go, others will have views on that, but we should look at where jobs have been taking a hit. Clearly, Torbay has suffered greatly during the recession, as has Swindon, but Swindon has a better chance of recovering through the private sector. Indeed, places such as Plymouth, which you know very well, must be the sort of candidates one would look for. I guess the question, which is not for us, is how many of those jobs there are to come, and whether they will in any way compensate for the likely losses of public sector jobs across the piece. Nigel will want to comment.

Nigel Jump: If you think of the pre-recession period, most of the jobs created in the South West in the previous 10 years were in the public sector, in property, or in related business services. We have to work on the assumption that we are not going to get that growth in the next 10 years unless we get some inward investment of the kind you are talking about. Yes, it would be very welcome, because it would offset some of the dire assumptions we have to make. Obviously, we would hope that the private sector and some of the export sectors I talked about in a previous answer might compensate for the losses in the public sector, but at this point we have to be concerned.

Tim Carroll: May I come in?

Chairman: Yes, please do.

Tim Carroll: Thank you, Chairman. Speaking from the local government side, we recognise exactly where we are: looking back at the recession and looking forward to the next five years, we see that a chill wind is coming. For our part, we want to be on the high ground and not on the beach when the tsunami hits. You are going to get significant leakage of jobs from the local government sector, and we know that. However, the dynamics of local government are changing, in terms of co-operation and collaboration. I cite my authority's proposed link-up with East Devon, and there are other examples. There is a general and gradual recognition from local government that something has to be done. The leakage of jobs, to use that term again, will be highly significant in many places, as you have heard, Chairman. Public administration jobs provide the bedrock.

Q79 Roger Berry: So the consensus is that public sector jobs are good for the South West economy?

Tim Carroll: In future, yes.

Q80 Roger Berry: Excellent. Starting with the witnesses from the RDA, may I turn to paragraph 1.10, in which you identify the "structural weaknesses" to which Nigel referred earlier? The region's engagement with international trade has been mentioned. You also list skills mismatches, infrastructure gaps and moderate aspirations. Of those four, which are the most significant?

Jane Henderson: If you ask business what it regards as the constraints on future growth, two things come up time and again: skills, and transport and infrastructure. I would be hard-pressed to say which is most important; they are both very important.

Infrastructure is traditionally seen as being about roads and rail, which are very important, but increasingly a key factor for competitiveness will be the South West getting equipped with next-generation broadband, notwithstanding the fact that we are a very rural region, so that we can compete, whether or not we have investment in roads and rail for the future. That may be something that we return to in this session, I don't know.

It may look now as if skills are not a big issue, but if we are to get big investment in nuclear power, tidal energy and the industries of the future, such as composites technology, aerospace or new renewable energy, we will need people with skills that we don't currently have. Broadly, those will be skills in technology, construction and science. Not to invest in those skills would pose a threat to the future jobs that we want to create in the region.

Q81 Roger Berry: The fourth item on the list is "moderate aspirations". I was quite intrigued by that. What is a moderate aspiration, when it comes to economic weakness?

Nigel Jump: It is a weakness if your aim is to raise the productivity of your region, and raise it more than other regions. It depends what your target is. If that's your target, the relatively low aspirations-in terms of business growth, job creation and other aspects-that we see in the South West are one of the major factors. That is one of the reasons why we are not an export area. Quite frankly, many business men in the region say that they do not want to be exporters. That is a logical, straightforward position from their point of view, but if our aim is to develop the region and create growth and jobs for the future, we should try to get more people with higher aspirations in terms of business growth.

Q82 Roger Berry: Is it the case that business people seriously underestimate the possibility of making a profit from export, or is it that they realise that they could make money, but just don't fancy doing it?

Nigel Jump: There are elements of both. From the region's food and drink sector, I have heard comments such as, "It's hard enough competing in Devon, so I don't want to compete in France." That decision is made on a logical and practical basis from those points of view, but that is not what the region needs if it is to be more competitive and productive.

Jane Henderson: I think we also suffer from a self-image problem. When talking about moderate aspirations there is an element of the self-fulfilling prophecy, which is quite dangerous for the region, because we also have some pretty hot entrepreneurs, particularly in our digital media sector, which is thriving and scattered all the way through the region in different places. It is important to talk up that aspect of the region, as well as the lifestyle business.

Nigel Jump: It is the tyranny of averages. If you look at the average statistics for the South West, you will see that we tend to be average or a bit below. We can all point to examples in different parts of the region of very successful businesses that are entrepreneurial, growing fast and nationally competitive, but on average we are less competitive and less productive than other regions in England.

Q83 Chairman: We have a large proportion of micro-businesses, and they employ quite a lot of people-41% of the private sector. It is only when they get to a turnover above £1 million that their reliance on grants and other support starts to diminish. What can be done to encourage them to aspire? That is obviously something that you are struggling with, on a range of levels, although it is not necessarily your fault entirely. I'd be interested to hear your views on that.

Jane Henderson: I don't think we can necessarily make people aspire if they do not want to, but we can, through business support and business advice, ensure that those who do have that spark and want to aspire get the best possible advice on how to grow, and ensure that they receive mentoring and help with access to finance. That, of course, raises the difficult question of how to find them-it is not for the public sector to pick the winners. Sometimes they pick themselves if you create the opportunity for that kind of intensive support. The other way we can look at it is to look at what appear to be the technologies of the future in both sectors, and use existing networks of businesses in the sectors to tell us where to direct the most intensive support. There are a number of things we can do, but what we cannot do is make people aspire.

Chairman: Doug, did you want to come in on that point?

Q84 Dr. Naysmith: To pick up on the idea of "moderate aspirations", where did that phrase come from? Do the people who have moderate aspirations know that their aspirations are moderate, or are you telling them that they are moderate?

Nigel Jump: It probably came out of my head. It is a shorthand term for the arguments I was putting forward about whether, in comparison with other regions, we have those high-growth businesses and whether we have export-orientated businesses. Although we have many good businesses, we do not have as many, proportionately, as you would see in some other regions.

Dr. Naysmith: But aspirations-someone aspiring to something-come from people.

Jane Henderson: Schools are another example of where that can be seen. I cannot recall the exact facts, but I remember that some research done in schools in Somerset-I am sure that this would apply elsewhere-found that it had never occurred to some of the students that they ought to aspire to go to university, even though they had the ability to do so, so people were self-limiting in their horizons, which I think is tragic. One needs to be able to lift and inspire people in our schools to go further.

Q85 Roger Berry: Let us move on from the tyranny of averages to the tyranny of budget cuts, which the RDA has had to suffer. How has that affected your work, and what impact has it had, if any, on the regional economy?

Jane Henderson: You are absolutely right. In the past year we have suffered some cuts in our capital budget-around £26 million over this year and next year-which came on top of us losing income from our own investments and operations because of the recession, and that was tough. As many in the region know, we have had to stand back and take some difficult decisions, withdrawing from projects we have been working on with partners over a period of time-they would have been good projects-and we have had to prioritise more sharply than before. Obviously, we regret that, but that's what we're here to do, and we did that job. We told people what we were doing. I think we've remained true to our central priorities, which are: supporting businesses; working towards a green economy; and helping our key places that are vital to coming out of recession-the west of England, Plymouth and Cornwall, with convergence-as well as other places, where we can.

Obviously, we've also had to tighten our own belts, because there have been cuts in our admin budget. So we're retrenching our office presences, using up less space. We had a major staff restructuring a couple of years ago and we're continuing to look for economies.

The next possible threat will come to our revenue budgets, and that raises a host of different issues. We invest a lot in business support, because we contract for the Business Link service and other support for business. We support quite a few arm's length bodies, including local authority capacity URCs and so on, which would come into the frame. By no means least, there will be a big question over our ability to match the European funds coming into the region; they are disproportionately large in relation to our Government grant, and that would therefore put at risk our ability to draw down vital European funds for the future.

Having said all that, we have won back, through the BIS strategic investment fund, some £32 million of investment for the region, which is very welcome. That will go into a national composites centre, into Wave Hub, into Promare and into digital media. So it's by no means all gloomy. But our budgets are now more constrained and more focused than they've been able to be in the past.

Q86 Chairman: Adrian, can I draw you in? You were nodding at the point when Jane was talking about the European funding and the role of the RDA in that. Do you want to comment on that?

Adrian Welsh: Certainly. It's worth pointing out that one of the implications of the recession is that we're now starting to notice reluctance from private investors to match-fund for convergence. I think we've been fairly fortunate to date, but as that's drying up it puts even more emphasis on public sector investment to try and draw down some of those European funds.

Q87 Roger Berry: Councillor Carroll, you mentioned earlier the prospect of stringent financial times for local authorities. How are local councils preparing themselves for this anticipated time of austerity?

Tim Carroll: We're obviously talking about our revenue budgets. I would say-I can only cite my own authority as an example-that we are having to look at radical solutions. In relation to the smaller districts, for example, one has to ask, will they be viable in the future? You are seeing increased push and a realisation on the part of a lot of authorities and districts-and, indeed, counties-in respect of collaboration. Total Place offers part of the solution, although it's not a total solution to this particular one. You are going to have to see acceleration of that process to try and drive down overheads across the public sector.

Sorry, that's a fairly bland answer. But if you look at the dynamics now, compared to what they were, say, six months ago, in terms of sharing services and the rest of it between authorities, the pace has quickened significantly. You are seeing within the South West, as I said to you earlier on, the biggest partnerships in terms of population between districts. Nationally and in respect of ourselves, the largest district in the South West is working with the second-largest in the South West, involving a population of 300,000. So that is an indication of what is actually happening to prepare ourselves for 2011-12 onwards.

What we fear, and I have to be absolutely candid about this, is that we have a certain quantum of discretionary spend. Whether we spend it on tourism-keeping the local swimming pools open and services like that-or other things, there's a whole host of services out there that are appreciated by our residents that are not statutory, but if you take them away the quality of life of our residents will be diminished. I'm sorry if that sounds direct, but that's what we want to preserve as much as we can.

Q88 Roger Berry: Could I move from looking forward to looking back? I should have asked the Strategic Leaders Board a question earlier. In your experience, which of the initiatives that you are involved with to tackle the recession were the most successful?

Tim Carroll: Can I pick one out that bears on what Jane said? The Regional Infrastructure Fund bore on the construction industry, for example. A lot of us across the local government mosaic had a lot of large schemes-large sites-just stall. The RIF gave us a way to kick-start these. Yes, we had to bring in the HCA as well, and frontload it with the affordable housing element. But we needed that. I think that has been successful. It is unfortunate that it has reduced in quantum, but we need an expansion of that scheme which addresses that particular sector, because affordable housing is a key priority for the South West.

Roger Berry: That is very helpful.

Q89 Chairman: Moving on from one scheme that you were obviously happy with, a range of other schemes was introduced by the Government that took a slightly scattergun approach with lots of different criteria and different sorts of funding access. Businesses to a degree found some of that confusing. Do you think there is any scope, now we appear to be through the worst, for bringing some coherence to those funding streams and bringing some of them together?

Jane Henderson: I think you are referring to support schemes for business. The first thing to say is that there has been a tremendous rationalisation already. The RDAs were charged by the Department for Business, Innovation and Skills with introducing the 30 solutions for business headline products out of what had been hundreds, if not thousands. The South West is regarded as a model of the better practice in all of that in terms of making things simpler and easier for business.

A debate is always going on about how things can be done more efficiently and about how much one might be able to make advice online rather than face to face. One of my concerns about that would be that we have a lot of businesses that do not have ready access to fast broadband and they might be put at a disadvantage relative to other parts of the country. So we need to look at some of the contextual issues before you decide that we can throw away the advice that is currently provided.

Q90 Chairman: Okay, that's fine. Can I move to a completely different area-the business properties 2008 revaluation? What advice are you as local authorities giving businesses who are seeing their rates increase as a result of the revaluation? As you know, the South West, along with London, was probably one of the areas that saw the biggest increases.

Tim Carroll: Indeed so, Chairman. It is fair to say that we are looking at an impact of 1 to 3%. In terms of assistance and advice, we talk about the rural hardship fund for a start. What some of us managed to do on that particular one is demystify or make the application process simpler. We have done that in co-operation with the Government Office and the Audit Commission. Let's face it, as I said in an earlier answer, the characteristic of the South West, especially among small retailers, is that you have a host of micro-businesses. Micro-businesses and the proprietors of micro-businesses cannot spend a week filling up a form or trying to get the answers. So, simplification of that one.

Rural business relief, I would like to raise, because it is certainly pertinent. There is a threshold for settlements of no more than 3,000. That was set some years ago. I think it is more appropriate that the threshold is raised to 5,000 to 6,000. Those are the small market towns. A lot of small businesses in small market towns cannot get transitional. They find it difficult to access hardship relief. If you are asking me for a possible solution for those small businesses in small market towns, that is it. At a stroke it would make life very much simpler.

Q91 Mr. Drew: As someone who is involved in this great debate about what is the appropriate size for housing numbers, do you think we are unduly rigid on what we try to do when we set these targets? They vary enormously in different parts of the country. In the South West, if anything, numbers ought to be smaller because we have some very small market towns that need as much attention as the larger market towns. Are you a bit wary about putting numbers on things?

Tim Carroll: I am a bit wary, but you have to look back in history and look over the last 30 years. What has actually happened is that rural businesses have been diminishing year on year-the local garage and the local pub have gone. So if you look at the quantum in the very small, 3,000-population settlements, you will find, comparing now with 30 years ago, it has reduced by about 60%. In effect, those outlets in those towns were originally serving the local population. The population now has been displaced and is having to use outlets in a slightly larger service centre. It is a question of trying to sustain those in the slightly larger market towns-when I say "larger", I mean between 5,000 and 6,000.

Q92 Chairman: Has the Strategic Leaders Board commissioned any work on this, to look at how thresholds potentially could change?

Tim Carroll: There is no specific work.

Chairman: If you are going to make a case for that-I understand why you are saying it, and it sounds very plausible-I think you need to have something behind it. I am sure the Minister will read and look at this, but-

Tim Carroll: I will gladly supply the figures on the applications under this particular scheme, because I think you will find they show that it has diminished significantly over the last 20 years.

Q93 Chairman: Thank you. May I move on to specific sectors? We know construction is particularly badly hit. Tourism we thought would be less badly hit last year, partly because we thought people would be staying home and coming down to Devon and Cornwall, but I am not quite sure whether that was in fact the case. I would welcome thoughts from the local authorities and the RDA on that. Are you detecting a healthy 2010, for example, for tourism?

Jane Henderson: I wish I could get the weather to sort itself out. I shall leave the figures to Nigel, so that they are correctly represented.

Nigel Jump: Yes, we have some figures for the year end, which basically covers the high season for the South West. They do show that trips are up, overnight stays are up and spending is up. I was one of the people saying that I thought trips would be up but I was not sure that spending would be up. Actually, it wasn't a bad year but, obviously, within tourism, we can point to some places and some types of business that did well. We know, for example, that caravan parks and those kinds of facilities did very well; we know some of the middle-market hotels didn't do so well; we know the top end and certain places did okay. It was a better year than the previous two years. The question is whether that is sustainable going forward. Unfortunately, the weather is the crucial factor. Assuming the weather is reasonable, then I think that the South West should benefit again this year from a low exchange rate and other factors on discretionary income.

Q94 Chairman: Okay. Tim and Adrian, what are local authorities specifically doing to encourage visitors to stay?

Tim Carroll: Chairman, first of all, we are sustaining our investment, quite obviously during difficult times. You have heard Nigel say that it was rather a peculiar year last year; fewer people came, but spent more, to be absolutely blunt. We are thankful for that. Our promotional activities are DMOs-destination management organisations-for example, plus the tourist partnerships that are spread out across areas. There is one in Somerset, for example, which encompasses not only administrative Somerset, but North Somerset as well. It is that kind of co-operation that you need.

Adrian Welsh: I concur with Tim Carroll. Certainly the work of the destination management organisations is important in raising the profile of tourist trips, but what has happened in Cornwall has been quite a mixed picture, dependent on sector and the rest of it. Clearly, we did quite well last year, in terms of what was expected, but part of the target needs to be when those trips were made and whether we can widen the typical holiday season to throughout the year.

Q95 Chairman: What about the conference and hospitality side of visitors to the region? With business obviously pulling its horns in, was there a dropping off in that particular market, for the hotels and so on?

Nigel Jump: Yes, there was. It was not apparent until the September-October season, because that is the main season for business conferences and so on. That was a weakness, yes.

Q96 Dr. Naysmith: Jane and Nigel were talking earlier on about the region's main weaknesses. Another one that you identified was with regard to skills, and presumably skills training. Can you tell us what is being done to address the problem that has been identified?

Jane Henderson: Yes. As I am sure you know, the skills landscape is in transition at the moment, and it's looking pretty complicated if you're sitting as a business. There are a couple of things. At the level of "What does the region need?" we have produced something we call a regional skills priority statement, which is fed into the Skills Funding Agency, which really maps out where we think the gaps are now, and that we would like to see funded as priority, and where we think the future opportunities are, in terms of our industries. We hope that there'll be an opportunity for the Skills Funding Agency to tweak their funding.

In terms of what we're doing directly, I think I mentioned earlier that one of the opportunities the region really must seize is possibly being in the first generation of nuclear power stations, so we are therefore contributing to a nuclear skills academy in Bridgwater, which I think will be absolutely vital for the region. Similarly, we've contributed to the Flybe skills economy, which will bring in more of the technical skills-not just for flying-that the region needs; and we've also supported numerous investments in the higher education sector, which are designed to make sure we have the right skills. That includes things like composites in Bristol, where we know that there is a potential threat of there not being enough engineers to drive a very important key sector.

Q97 Dr. Naysmith: It's interesting that you mention that because last week, or the week before, at the Science and Technology Committee, research council people and university people were all saying they really feel there's going to be massive reduction in the science budget and STEM subjects as well. That could have a really big impact on the South West, couldn't it?

Jane Henderson: There is a problem, both on the demand side and the supply side. It would indeed be a threat, but of course the other side is getting people to want to study STEM subjects, and the research we've done shows that you get a drop-out at every stage in the education system, right from age five, 11, 14, 16 and again when people are graduates as well. That is perhaps more of a cultural problem-we do need to encourage teachers and the people who are advising parents and young people to see that there are real opportunities, if they go into these subjects, to do things that they would feel good about, like helping us develop a green, low-carbon economy, and so on. I think we have to work at both ends.

Q98 Dr. Naysmith: How many apprenticeships do we have in the region? How many people can hope to benefit from apprenticeships this year?

Jane Henderson: I do have figures in my notes, which I will see if I can lay my hands on.

Chairman: While you're looking can I ask local authorities how they contributed towards apprenticeships? [Interruption.] Go on. Sorry, gentlemen. I'll come back to you.

Jane Henderson: The total number of starts in 2008-09 was a few short of 27,000 in the region. Interestingly, the majority of the young people's apprenticeships were in firms of under 50 employees, which is a good sign, I think, but we're only getting one in 10 of our 16 to 18-year-olds into apprenticeships, and the target is one in five, so there is some way to go. Also, of course, there is the challenge of making the system really responsive to employers at a time when they are in difficulties anyway.

Q99 Dr. Naysmith: I was privileged last week to meet four young apprentices in NHS Bristol, the primary care trust, and they were doing interesting things and they had a really wide choice of things they could do in the future. How good is the public sector at doing apprenticeships? This is quite unusual in the NHS in my constituency in Bristol. As you know, Jane, there are lots of apprenticeships with Rolls-Royce and Airbus, but not nearly so many in the NHS.

Jane Henderson: The answer is I don't know that factually, but one thing that does occur to me is that an apprenticeship in the public sector could lead to a job in the private sector, and vice versa. I wonder whether we always see that wider picture, particularly when we're looking at generic skills.

Dr. Naysmith: We need the public sector to train more, which brings us on to Alison's question to Tim.

Tim Carroll: If I can respond, I think the question may also involve the future jobs fund, quite obviously, and that, I would say, has been successful. It is clearly regrettable-I have to say that, don't I?-that the scheme has a termination date. There is a slight irony: we've taken these young people in at the same time as many local authorities, for example, are actually making other people redundant, so there's a slight tension. Just to give you an idea, that scheme has actually produced 1,950 jobs for young people between 18 and 24.

There is a gap-is there not?-in terms of support for NEETs. Connexions takes you up to 19, and the gap is from 19 to 24 more than anything else. I think possibly that if this scheme and others could be sustained, that would assist.

Q100 Dr. Naysmith: Finally, what do you think regional business and universities can do to improve their exchange of knowledge and resources in this area particularly?

Jane Henderson: It is a huge question. I don't think we have time.

Dr. Naysmith: You have 30 seconds.

Jane Henderson: Thirty seconds on all of that. It is the sort of area where the RDA has invested, to try to get graduates into business. We have a number of schemes for PhD students, and in Cornwall for other graduates, to get them into business, which have been really successful and appreciated by business. Through our other investments in things such as Combined Universities in Cornwall, we have been frankly leaning on universities to ensure that those investments result in a reach-out to business, because that is what they are for-they are there to help the economy primarily, rather than simply create more higher education for its own sake.

I would like to mention a couple of other things we are doing, which aren't necessarily at the university level. We have very good co-operation with our sector skills councils to try to ensure that we are focusing on future jobs. There is a particular low-carbon group that is looking at projects on marine energy and low-carbon high skills, where we are putting money into foundation degree-type work in our universities, which I hope will encourage people to notice that is where the opportunities are and go forward with them, even at a time of constrained resources.

Q101 Mr. Drew: On the issue of employment-I will be very precise on this-Tim, it would be helpful to pose this question to you. What prospects does the South West see from the future jobs fund, particularly from a local government's perspective, given that we know we have these wider pressures? How are you going to take up that opportunity?

Tim Carroll: If I can answer that in a similar fashion to how I addressed it a minute ago, we have this distinct irony where we are employing younger people but letting older people go. In a way, what I would say is that that gives a very bad message out there in terms of compulsory redundancies. We are experiencing quite a few of those-you only have to look at the headlines. Birmingham is not in the South West, but Somerset county council announced 173 redundancies last week. The plea is around not only programmes for the young-I would say this anyway, wouldn't I?-but that revenue support grant levels have to remain as high as possible for the South West.

The usual point to be made, as I and all my colleagues in the South West do, is that the levels that we receive are out of kilter with those received in other regions.

Chairman: We've heard that before.

Q102 Mr. Drew: Can I look at the second aspect of this? Doug has already covered part of this: the issue of universities. I am very interested in the potential mismatch of the number of places for-I won't just say this-18-year-olds; my older son has been trying to get there next September. How are we going to try to deal with this problem, given that under the Aimhigher initiative, the very people whom we most want in higher education, who certainly have the talent, are the ones who have been precluded in the past? They could be the ones who are going to miss out big time. I will start with Tim, then perhaps ask Jane about that.

Tim Carroll: I agree with you that it is a barrier to advancement through that particularly conduit. You heard earlier on about the survey of schools in Somerset. That is where we, as local authorities, can play an absolutely good part. We are working with the RDAs and local FE and HE institutions to try to bring the two together. It is a barrier. I don't have an instant solution to this. I just wonder whether there is evidence to say that this outlook, this approach, this attitude is any different or there is a differential between the regions. Certainly there's a differential between the South West and the South East, but with the other regions, I just wonder.

Q103 Mr. Drew: Jane, could you look at the university issue quickly?

Jane Henderson: The issue about-

Mr. Drew: The mismatch between supply and demand for younger people-well, all people, but specifically targeted at younger people.

Jane Henderson: Younger people are suffering most from the recession, so I wouldn't want to say we shouldn't target younger people because it's a real issue, but in terms of the skills and qualifications our economy needs, often it is a question of retraining older people and sometimes it's difficult to get funding for training that is moving you from one level 3 to another level 3 and so on. I think there are some flexibilities now, but the ability to change your skills and update them for new industries is absolutely critical for our region, given all that I've said about the opportunities that lie ahead. I don't know whether Nigel wants to add anything.

Nigel Jump: From my point of view, there are three elements to this. There's the replacement element. A lot of people will leave the labour market in the next 10 years who need to be replaced, so that's an issue. The second one is the young unemployed. They are the people who have been most affected by the recession and that's the opportunity for these new industries-nuclear, the green economy and all those kinds of jobs. It's those people who need to be trained up for that. The third issue is people who are in existing employment who need to raise their skill levels if they are to remain employed in the future. There are three elements to the skills problem in the South West.

Q104 Mr. Drew: May I move on before we come to a conclusion? I will try to link a couple of things together: the more rural economy, on which I shall bring Adrian in, and the opportunity of green jobs. We keep talking about the South West being ideally situated to grow green jobs, because of the energy opportunities, the water opportunities, some of the issues to do with growing biomass and so on. The problem is that from what Tim said earlier, there is a movement away from the more remote places. What employment, services and generational activities existed there have migrated at least to the larger market towns if not to the more urban areas, so what is the challenge regarding rural areas and green jobs? If there is a real challenge that we can deliver on, how will we deliver on it? Perhaps we can start with Adrian and go into the far South West.

Adrian Welsh: First, certainly in Cornwall we think there's a great opportunity for pursuing the green market. Part of the investment and stake links to the previous question on reskilling and the work that the Combined Universities in Cornwall has undertaken. It has doubled its number of students over 10 years and is increasingly looking at studies related to that emerging sector, so we're getting increasingly talented people with the right skills in the area, which is a start. In terms of the rural area and how we go about trying to address some of these issues, clearly the RDPE provides opportunities for local area groups to look at some of those issues, but in essence I think some of the rural funding opportunities have diminished in recent years. The rural renaissance programme, again, has not continued. So there is a need for additional funding, but it's also a question of maintaining the existing services that would feed into that process. I am talking about horizontal businesses that could assist with that renaissance and making sure that they stay there as well.

Q105 Mr. Drew: Tim, one of the things I'd like you to focus on is how the RDPE operates, because I would be quite critical of certain things. I know Jane will have to answer this for real, but I would welcome your views on how the RDPE fits the agenda of what we might want to do in this area.

Tim Carroll: May I answer that by addressing one of the earlier comments that was associated with that? You quoted me on jobs moving to the larger market towns. We all aspire to sustainable communities, whatever size those communities are. That brings me to make a point at this juncture on the status of the RSS, which is causing uncertainty at this point across the region. We need to unlock that, more than anything else, because it's causing uncertainty in the business community as well, quite obviously. Any community, as we look at it at the moment, has to be sustainable-I am coming to your points very quickly-across the tripartite components of housing, employment and infrastructure. That is what we aspire to. RDPE was successful and, as far as we're concerned, we would want it to be continued. But, as I said, there is a greater concern now with the overshadowing and what happens after 11/12 in terms of general funding.

Chairman: Okay. Jane, your final answer.

Jane Henderson: Yes. There are two areas there: the green jobs question, and the rural issue and the RDPE. I don't think there is any official definition of a green job-it could be anything from composites technology to microgeneration to sustainable tourism, which RDPE is supporting, to food and drink. It has quite a wide definition, and we have strengths in a lot of those areas in the region, which are not always in the urban areas. If we look at things like marine energy or, indeed, support for wind energy off the Atlantic array, they are perhaps going to be happening somewhere in North Devon or North Somerset; they are not going to be happening in our big urban areas.

Turning to rural jobs and RDPE, by and large, rural jobs and businesses are not that dissimilar in character from jobs in urban areas. They need the same sort of support, skills, access to good technology and business support and advice. If you look at the number of businesses using the Business Link service, something like 40 to 50% of those are in our rural areas, which is more than you might expect from the number of businesses. So they are getting that support.

We are now making progress and beginning to spend money on RDPE. A substantial part of that programme is now committed, but one has to remember that the rules laid down by Europe are derived from the fact that RDPE includes money that was formerly paid through the CAP to farmers. So there are some limitations on how it can be spent. For my money, one of the most important things we need to do is to provide next-generation access for rural areas, otherwise there is a risk we will be left way behind other regions in our rural areas. One of the issues we are currently supporting DEFRA in is getting changes to the rules of RDPE to allow us to deploy RDPE money in that way. We are going to be spending some £700,000 on pilots for rural communities to be enabled, but that is fairly limited and we would like to have greater flexibility.

Chairman: Thank you all very much indeed. I appreciate your answers.

Examination of Witness

Witness: The Right hon. Jim Knight MP, Minister for the South West, gave evidence.

Chairman: Minister, it is very nice to see you.

Jim Knight: Always a pleasure.

Q106 Chairman: Thank you. Can we start off with a question that is very similar to the one we asked you when we did our first investigation? How do you see the state of the South West at the moment?

Jim Knight: Specifically on the economy?

Chairman: Yes, on the economy. Where do you feel there are still genuine weaknesses that we need to focus on?

Jim Knight: Thank you. Last year was obviously a very difficult year for everyone, including for people living in the South West, but we showed a good degree of resilience through the recession. If one looks at employment rates, although proportionately we had one of the highest falls in employment, when comparing regions, our employment rate is still the second highest, I think, in the country. We were not hard hit in the way in which the West Midlands or the North East have been, but, as we move into recovery and start to see growth in the economy, we are not seeing the same speed of recovery as some of the other regions. It is a more stable picture across the South West.

Q107 Chairman: Is that recovery affected by the fact that wages are not growing as fast as in other regions, and that spend is potentially lower?

Jim Knight: I think it is partly that. To some extent, it is that the South West economy has a reasonable amount of public sector employment, which has remained stable but it creates some uncertainty in the future, and that the proportion working in small and medium-sized enterprises is higher than the national average. There is a lot of churn nationally about employment again. The smaller businesses give us a certain amount of robustness. That is not to talk down the traumas that are going on in Keynsham at the moment thanks to the Cadbury's decision. There have been big decisions by some big employers that have been very damaging, but we have not had it to the same extent as other regions.

We go into this year with things fairly finely poised. Obviously, we have an election coming up, and there is a danger that my answers might become slightly political. None the less, if the wrong decisions are made around the role of Government and spending in the economy, and decisions are then made specifically in the region around public spending, it will be quite important to see how the region goes forward and whether or not, strategically, spending is made around potential areas of growth. When I talk to people around the region about the future, they say that they feel more positive about their own security both in their jobs and in their homes but they are worried about what jobs there will be in the future for their children. If we are not properly planning for and making strategic decisions around, for example, advanced manufacturing, life sciences and green technology jobs, the future for the region is much more harsh than if we were properly planning them. In the meantime, we must ensure that Government spending is performing its role while we wait for consumer and private sector spending to improve.

Q108 Chairman: Are you already girding your loins for the battle with other regional Ministers over where the civil service jobs will go following the Smith civil service relocation review? Surely the South West has a good case having missed out on things such as the Marine Management Organisation.

Jim Knight: When we get into that further round of the Lyons/Smith relocation of public sector work out of the South East and London, it is important that we as a region get our fair share. What we will then have is an argument about what is fair in respect of that fair share. I am conscious that there are certain parts of the region that might not have fared so well in terms of some of the consequences of loss of head count in areas such as land registry and HMRC. We need to identify those areas to see whether we can ensure that any jobs that migrate out of the South East can come to those sorts of areas.

Q109 Roger Berry: Minister, our previous witnesses seem to share the view that you have alluded to, which is that public sector jobs have been good for the South West economy. That being the case, and given that people anticipate reductions in public spending in the near future, how should the region prepare for that and what will the effects be?

Jim Knight: That is something that we discussed at the regional economic task group last Thursday. What I was keen to promote was some very active discussion, particularly with local authorities and to some extent with the representatives of staff in the trade unions, about the ways in which the public sector can learn some of the positive lessons of this recession from the private sector.

I think that it has been interesting and notable that by and large-with some exceptions, but by and large-private sector employers have not rushed into making redundancies during this recession in the way that they did in previous recessions; they have found other ways through. People have paid the price for that in respect of working fewer hours and getting lower take-home pay as a result, but at least they have remained in work. That is not to discount those people who have lost their jobs.

However, we in the public sector need to ensure that we have learned the lessons of what those employers have done and to see whether or not we are being properly flexible in our employment practices, including seeing whether there are some people who would like to go part time or who would like to work more flexible hours, so that, in turn, we, as public sector employers, do not rush into making redundancies.

That is something that I am encouraging as Regional Minister. I am encouraging councils to look at what is good practice in how they deal with the need for greater efficiency, which is something that I think is inevitable over time.

Q110 Roger Berry: But however we respond to cuts in public spending, they are clearly deflationary. Are there not enormous dangers in going down that road before the regional economy is clearly established as being on the road to recovery? I mean seriously on the road to recovery and not just at the tipping point.

Jim Knight: Absolutely. The letters from the economists in the Financial Times last week-

Roger Berry: Excellent letters, I might say.

Jim Knight: Excellent letters-fine letters. They were making the point better than I can, because much as I might pretend to know something about economics, I certainly have not won any Nobel prizes, as some of those economists have done. What they were reminding us was that if you cut public spending too soon, before there is more resilience in the economy and more spending in the economy, that runs a serious risk of the fabled double dip and could cause us huge economic problems and growing numbers of unemployed people. To speak with my other ministerial hat on, because we have delivered over 400,000 fewer unemployed people than was predicted at the time of the Budget, that has saved the taxpayer about £2 billion nationally.

All those things need to be weighed up when whatever Government are in power in the middle of the year are making decisions about immediate levels of public spending. My view and the Government's view is that we should not be looking to cut too fast. Yes, we have to halve the budget deficit over the next four years, as set out in the Fiscal Responsibility Bill, but we must not do it in a hurry because of the risk to the economy if we do. In that area, there is a difference between us and the Opposition.

Q111 Roger Berry: I think that if I had been one of the authors of one of those two letters-if I was Joe Stiglitz or somebody-I would say, "Well, yes Minister, but the problem with that is that cutting public spending is sort of okay if the private sector is there to take up the slack."

However, since-self-evidently-the private sector is not there to take up the slack and since the private sector has benefited enormously from the boost that public spending has given the economy in the recession, if I was Stiglitz sitting here, I think I would say, "For goodness' sake, now is not the time-and nor is next year or the year after-to be talking about local authorities and everyone else making significant cuts in public spending, because there is not just the chance of a double dip-it is almost inevitable, because where is demand going to come from?"

Jim Knight: You make your point extremely well, but you are tempting me to stray into territory that my colleagues in the Treasury should answer for, about the overall macro-economic policy.

Q112 Roger Berry: Can I ask my next question then? What conversations have you had with your colleagues in the Treasury on these matters? Clearly, they are not purely regional matters, but nor are they entirely Treasury matters.

Jim Knight: They are very important for us as a region, because beyond the direct effect of public spending and the employment that we get, we have other consequential effects, such as our defence industry, which, as we know, is so important to the region. Ensuring that we have continued, good, strong defence spending is quite important to employment and to our regional economy. So those matters are very relevant to me in my role as Regional Minister, and yes, I do discuss them with Treasury Ministers, who in the end will have to make decisions beyond the current spending period.

However, as a Government we all agree that our priority has to be jobs and preventing the human consequences of going back into recession, so we will continue the investment in the economy, which I think has been remarkable work. If you look at the rate of repossessions, it is half what people predicted. If you look at the rate of unemployment, it has been nowhere near the figure everyone expected, although it has gone up. Similarly, if you look at the rate of business failures, you see that active government has dampened the effect of recession.

Q113 Roger Berry: I happen to agree with that passionately, which is why I am desperately concerned that we should be very cautious indeed before embarking on public spending cuts. Obviously, some areas of public spending are more effective per million pounds-or whatever-spent on boosting the economy than others, so my final question is: which areas of public spending in our region do you think are generating the most positive impact on economic growth?

Jim Knight: On economic growth?

Roger Berry: Do you have any priorities about more effective, and perhaps less effective, public spending in that regard?

Jim Knight: In some ways we are moving from a phase of looking at how to lessen the damage caused by recession and giving people prospects as we move into recovery, into a phase of thinking about growth. We have the growth strategy that was published by BIS, and we now have regional strategies that are going to fit into that, giving it a much more coherent framework.

Irrespective of any question about growth, I would say, and this relates back to the answer that I gave the Chair, that it is investment in things such as the national composites centre in Bristol, in partnership with the familiar partners from the aerospace industry-Rolls-Royce, Airbus, GKN Westland and so on-and with Vestas on the wind turbine side, that enables us to grow real expertise in carbon fibre technology and turbine manufacture.

That then feeds into the importance of Government investment and of stimulating investment in the Atlantic Array wind farm and the West of Wight wind farm, which in turn will potentially create thousands of jobs-and a world-beating industry, if we can get everything aligned properly. That mixture of investing in science, advanced manufacturing and technology, and green is an example of playing to our strengths and why getting the low-carbon economic area designation was a really important part of our growth strategy.

Q114 Chairman: On assistance to business generally, and the enterprise finance guarantee scheme, when we questioned you before on this, we were a little concerned about take-up levels. Are you now satisfied with the take-up levels?

Jim Knight: The latest statistic that I have is 874 businesses in the South West offered loans totalling more than £80 million. In my consultations on the pre-Budget report with the regional economic task group, I was encouraged to encourage the Treasury to extend the scheme, and we were pleased that it was extended as part of the pre-Budget report. At that level, I am very satisfied with it, and satisfied that the region has been listened to. Of course, if more businesses could, and wanted to, take up the scheme, I would welcome that.

Q115 Chairman: Do you have a sense of what percentage of businesses that applied actually got it?

Jim Knight: I don't have that figure, but if I can get it I will get it to you.

Q116 Chairman: That links in to the advice they were given on whether this particular scheme was suitable for them and on the broad array of alternative schemes. There have been comments that some of this was a bit too complicated and that it needed to be slimmed down. We heard evidence in our previous session that some of that work is going on. Are you satisfied that we've reached a level at which it is clear enough to businesses exactly which route they need to go down to get help?

Jim Knight: We have 912 eligible cases, 874 loans offered and 744 loans drawn down. That is reasonably high in terms of eligibility offers and draw-down.

Q117 Chairman: Do you know how that compares with other regions?

Jim Knight: I can try to get hold of that information for you; I am sure that we can.

Chairman: It would be interesting to do those comparisons.

Jim Knight: We have worked quite hard with the banks to try to get a better relationship and a better dialogue going. I've got-I think he's still coming-Lord Myners coming to speak to the regional economic task group so that we can directly question him.

Q118 Chairman: When is the next meeting?

Jim Knight: Next month-[Interruption.] The date is coming to me; I think it might be the 18th.

Q119 Chairman: If I can digress a little, when we saw you last, you said you would send us regular reports on that meeting. The last one we had was in October '09. If there are gaps, we as a Committee would be grateful if someone could fill them for us.

Jim Knight: Apologies. I will make sure that we fill those gaps and keep you regularly informed.

Q120 Chairman: Thank you.

You touched on the banks in your last answer. Like colleagues around this table, I suspect, I'm still picking up from constituents that there is still reluctance on the part of the banks to lend. Some of the reasons for that may be very sound business ones, but we also have evidence of companies with a long history of good orders still having problems. What is your feel for the wider region?

Jim Knight: This is a particularly difficult area on which to be really clear about exactly what's going on, partly because it is a slightly different picture-it is a very different picture for the very large businesses. The evidence that I see when carrying out my other responsibilities-I sit on the National Economic Council-is that the larger employers are accessing different forms of lending from bank lending, and doing so reasonably successfully. There remain some issues with the intermediate-sized businesses and their access to finance, but the general national impression that you get is that things are okay for the smaller businesses. I then test that regionally. Yes, I still get colleagues here in Parliament and businesses telling me that problems remain, but I don't get that to the same extent that I did about six months ago.

Certainly the perception that I get from the representative from the Federation of Small Businesses who sits on the Economic Task Group is that the issue is not quite the same as it used to be. Similarly, when banks have come to our group-that is not all the banks, and there might also be an issue in that we get reasonable intelligence from the banks that the Government have the most influence over, but less so from the others, and different banks might be behaving slightly differently-they have been pretty positive about their appetite to lend, and indeed about wanting to engage more directly with the FSB.

What might also be going on is that businesses are, to some extent, concerned about their perceptions of whether they will be given credit, and also the cost of that credit. Perhaps because of bitter experience of when things were really crunching with the beginnings of recession-suddenly having the rug pulled from under them with that credit facility being removed-there might be some self-limiting behaviours going on. I am sorry I can't give you a completely clear picture, but that is the overall picture that I get.

Q121 Chairman: A very quick question on HMRC and its Time to Pay scheme, which has been successful. Do you think it should be extended to businesses that need it in 2010 and 2011? Or would you be falling foul of your Treasury colleagues?

Jim Knight: I think that question is probably above my pay grade. I would agree with you that the scheme has been extremely helpful. We've had, through the business payment support service, 30,000 agreements in the region to defer £437 million of tax, for example. That is of huge benefit to employers in smoothing things through and allowing them the time to manage the problems that they have.

Q122 Chairman: Do you have a sense that business organisations are working with their members to remind them that this is not going to be something that is available?

Jim Knight: I would hope that they are. The encouragement for them is to do so. With the VAT reduction and the restoration back to its previous level, we have been clear about what was going to happen. In retail, everyone knew that it was going to go up and pretty much anticipated it. People listen to the Treasury very carefully, as do I when I am thinking about how to answer these questions.

Q123 Roger Berry: Minister, unemployment in the region has fallen in recent months, as you said, but it is rising among men. It is particularly serious among young people, as we have heard, and that is common throughout the country. How do you propose to tackle the disproportionate increase in unemployment among men and young people?

Jim Knight: Obviously, the picture that you paint is right. There is an awful lot of energy going into how we tackle problems for young people, so I shall deal with that first, and then come back to male unemployment more generally.

It is a complicated picture to explain, in some ways, but young people always make up a higher proportion of the population of people who are unemployed. That proportion actually has not changed a great deal during the recession, but it does mean that, as always, the majority of people who are suffering through this recession-not the majority, but a large proportion-are those under the age of 25. We have done a range of things to try and address that, compared with previous recessions.

For example, long-term youth unemployment-those claiming for unemployment for more than 12 months-was over 1 million in both the 1980s and the 1990s recessions, but it is now less than 20,000. That gives you a scale and shows the extent to which things have been very different this time. There has been a huge success in people staying on in education. We have more young people than ever before in education-both higher education and further education-and in school. That has made a massive difference. Indeed, it has distorted the unemployment stats, because there is a weirdness with the way the International Labour Organisation collects its stats, which I won't bore you with unless you want me to.

Education has been a part of it, as have the young persons' guarantee and the six-month offer that we brought in through Jobcentre Plus. Now there is the Future Jobs Fund, where we have got jobs for young people that have been created thanks to Government funding right across the region. That is worth at least six months' minimum-wage employment, with a community benefit to those young people. The very first young person in the country to benefit from the Future Jobs Fund and actually start work was a young man called Patrick Coffin, a farm worker in Wiltshire. We in the South West have a pretty good record in respect of the delivery of the Future Jobs Fund.

That is still a challenge. I did a breakfast event for Backing Young Britain in Plymouth two or three weeks ago at which we were encouraging employers to share the problem with us. We are saying that if a young person gets to six months' unemployment-about 20% get that far-we will guarantee them a job, a training place or work experience. However, we are also saying to employers that we cannot tackle the potential problem of long-term youth unemployment on our own. We don't want to go back to the days when unemployment was a price worth paying and whole generations were blighted by unemployment. Employers need to help us with internships and apprenticeships, which have also been expanded in both the public and private sectors.

Q124 Roger Berry: How do you respond to a comment that was made to us earlier this afternoon that although the Future Jobs Fund is certainly successful in finding work for a number of young people, in many parts of the region, at the same time, older people are being made redundant, so there is an issue about what the net effect of the programme is?

Jim Knight: One of the early decisions that I made as Employment Minister was to insist that representatives from the TUC were involved in the assessment process for the allocation of Future Jobs Fund jobs so that they could give us good advice on whether there was a displacement effect. I am not interested in granting jobs under the Future Jobs Fund that displace people who are then made redundant.

Q125 Roger Berry: Are you reasonably confident that that has been successful?

Jim Knight: Yes, I am. I would never say 100%, because that is dangerous, but I am confident that we have been pretty successful with that.

I heard Tim Carroll's comment while I was waiting to give evidence, and I am conscious that we are delivering quite a few Future Jobs Fund jobs through local authorities. Some of those-he mentioned Somerset, and I think Devon has also announced quite a large number of redundancies-must obviously work out how they manage that. The Future Jobs Fund has also been delivered through other employers-not just local authority employers-and also in unemployment hot spots, where the jobs are available to people who are aged over 25, as well as under 25, so through that mechanism, we also have a balancing mechanism.

Q126 Mr. Drew: Can we move on to skills shortages and where we are with Train to Gain? I have a specific question, and I will than have a long moan-although I think it is a useful moan. Where are the skills shortages in the South West, and what are the Government doing to try to deal with them?

Jim Knight: I think that the South West is quite interesting, and in some ways it is quite challenge for the Government, because it has one of the most qualified populations. If skills are measured on the basis of qualifications, the region does really well, but its productivity is lower than the national average, so our normal assumption about qualifications leading to higher skills levels leading to high productivity levels does not quite hold true for us as a region. Some of that might be because the skills are in the wrong place, or perhaps they are not the skills that exactly match the skills of the economy of the region. Certainly, when we are thinking about how we go forward, we need to ensure that we match our growth strategy nationally with the growth strategy for the region, which will be developed through the new processes that will start in the new financial year. That then needs to match the skills strategy, and that is what the regional employment and skills board needs to ensure is delivered for us, working with the Skills Funding Agency particularly, and also the National Apprenticeship Service within the SFA. For example, the two nuclear power stations that we are looking to develop in the region will need skills that we will look to develop with a nuclear skills academy. That is the sort of activity that we need to develop now so that we can anticipate those skills needs as we go forward.

Q127 Mr. Drew: Let me take you to my little moan, although it will be instructive. As you will appreciate, I was one of those calling for wage compensation. I lost that argument, but we tried to do something locally for people who were on short-time working. I negotiated with two companies-Delphi and Renishaw both had quite major problems with short-time working-for them to use the day that people were off to upskill the work force. We used Train to Gain as the vehicle through the Learning and Skills Council, as it was. To be honest, it was an absolute nightmare. The numbers that we originally talked about were up to 700, but I think in the end less than 50 got through, and that might be an exaggeration.

There were two key problems. First, the bureaucracy around Train to Gain was unbelievable, and I seriously urge you to look at that. It was a very difficult process. Secondly, although we were dealing with quite skilled people, when it came down to them sitting at a table, looking at paperwork, and trying to prove what they could do to upskill themselves to get the NVQ and so on, they just went to pieces. That is a real problem in our area. We have highly skilled people who might not have the literacy and numeracy skills to be able to support what they would appear to be capable of doing.

That is my tale of woe, and I would welcome a very quick response because it would seem to be ticking all the right boxes. Everyone worked very hard but I am not sure, with the benefit of hindsight, that I want to spend my life doing it again. There was a great deal of disappointment and angst among the two companies about why it was all so difficult.

Jim Knight: I would be interested to get more information about that experience so that I can take it up with the Department for Business, Innovation and Skills, particularly as the SFA was forward, both in the region and nationally, in trying to make sure that the bureaucracy that you talk about in respect of Train to Gain was addressed. Train to Gain is something that, by and large, we should be very pleased to have developed. Post-employment training is critically important, as is fitting it around the individual needs of business, as Train to Gain is trying to do.

There has been a problem around Train to Gain as it has come in. Initially, the take-up was fine. Perhaps there was an under-demand, but now there is an over-demand for Train to Gain, as I understand it. It has been difficult to find the funding to meet everybody's needs, which might also be behind part of the problems that were experienced in your area. I also want to make sure that it fits properly around the development of skills accounts, which were something talked about in the recent skills paper from BIS, so that those you talk about who have high levels of skill but problems with literacy and numeracy can, through the skills account mechanism, more clearly and easily see what their entitlements are and how they can access them locally in a flexible way that suits their employment. That is one of the challenges that the SFA, as it emerges from the LSC, needs to be able to address.

Q128 Mr. Drew: The cuts in university funding are obviously going to hit the STEM area-science, technology, engineering and maths. How do you think the South West will be able to withstand that? If you look at our universities, we have a strong technology background-UWE, where I used to be, Bath, Plymouth in marine technology, and so on. It could be quite bad news for the South West unless we watch it. What are you doing as Regional Minister to protect our HE from being disproportionately affected in this area?

Jim Knight: It is something that I am trying to keep an eye on. I am due to meet the vice-chancellor of Plymouth shortly to discuss the effects there. You are right that, as a region, the science and science research that we generate is above average. We need to protect that because it is a key part of our story as we go forward. What I set out in respect of the national composites centre is an example-it is very much building on the research excellence of the University of Bristol.

As a Government, we are saying that the university sector has enjoyed an unprecedented period of growth over the past 12 years. There comes a point when, as for everywhere else that is publicly funded, you have to go through a process of efficiency saving. The vice-chancellors are extremely vocal and articulate in saying that they have been good at efficiency saving and that it is very difficult for them to deliver on what we want, and I know that David Lammy and Peter Mandelson continue to have that discussion with them. I will make sure that I am, as the voice of the region in government, trying to look after our interests and the STEM subjects in particular, which is where we saw the big expansion of places in the summer. That was very much focused on STEM places for students because, again, governance is of critical importance in looking after that. I have discussed it with Lord Drayson, the Science Minister, who coincidentally also lives in the region.

Mr. Drew: He lives in my constituency. I shall be seeing him on Friday, so I can make private representations.

Jim Knight: I know that he shares the concerns, but he also shares the view that, in the end, we have all got to do our bit in making sure that we get more for less.

Q129 Dr. Naysmith: May I apologise, Minister, for not being here for your earlier questions?

You will be aware that there is going to be a high rates bill to be paid by a lot of people following the revaluation from April this year. Many South West businesses are going to struggle to pay these increased rates. At a time of such economic hardship, is that fair or sensible?

Jim Knight: Certainly, I am well aware of the problems around rates. That is one of the things that I have been relatively active on of late, meeting with both the head of the valuation office and the head of the region, and then separately with Barbara Follett, the Minister in the Department for Communities and Local Government who is responsible for this.

You will appreciate that a fair amount of this-pretty much all of it-is bound by legislation. Changing legislation is obviously quite a big thing for us to have to do to vary things. Dartmouth, in particular, has been very vocal about the problems of increasing rates. I asked to see the pattern across all the coastal areas of the region, and I was surprised to see my own area coming out top in respect of the cost of business rates. It is much higher than in areas like Dartmouth, which put the situation into a useful context for me.

My analysis is that the rules have been properly applied, and that the valuation office has a very, very high level of sampling of businesses to understand what the rate levels were in April 2008. Clearly, it is unfortunate that that measuring date was before the recession really hit, so those valuations were almost certainly higher than they are now. It is then a question of transitional payments and transitional relief. My discussions with Barbara suggest that although the rules and regulations have been properly applied in respect of that, there are one or two businesses that unfortunately have experienced a double whammy. I have met one of the proprietors from Dartmouth who, because the valuation has pushed them over £18,000, which I think is the threshold, no longer count as a small business and therefore do not qualify for the same level of transitional relief. The numbers of those are marginal, but those are the people who are particularly hard hit.

Q130 Dr. Naysmith: It is not just coastal. There is one of those in my constituency. It is a small business with two shops, and it is going to be pushed for a huge increase in rates because of this transitional jump.

Jim Knight: That's right. Obviously, I've talked to Barbara about that, but without changing the legislation it is very difficult; it is not possible for the Government to do anything about it.

Q131 Dr. Naysmith: Is the Treasury interested at all?

Jim Knight: Again, in the conversation that I had with the Minister, I could not disagree that it was right that we regularly review these things. The review comes round every five years so that we do not create situations whereby things are horribly out of date. Sometimes it feels like that with the council tax valuation casework that I get as a constituency MP, where you have to try and remember what valuations might have been like for a house that wasn't built when the valuation was made. It is right that revaluation is done regularly and that, in the end, it reflects the value of the rents locally. If you change the transitional arrangements, that is a ring-fenced pot of money, so you are taking it away from somebody else to redistribute it. If I were to go to the Treasury or Barbara or anybody else and ask them to reopen all that transitional arrangement to benefit an excellent deserving case either in Dartmouth or in Bristol, that would involve saying to another business, "I'm sorry, we're going to take some money away from you." Without changing the legislation there's no other way of doing it.

Chairman: Doug, can I just bring Roger in?

Q132 Roger Berry: Minister, it's not only a question of fairness. That's important, but clearly this is deflationary: this is taking real income out of the region. So in terms of your discussions with other Ministers-I always think of the Treasury as having, for some reason or other, some of the more important ones-if this fiscal policy's going to deflate the regional economy, I hope the rest of their fiscal policies might compensate at least for that. Certainly, in discussions it ought not to be about simply the fairness of this. I understand that we're talking about a fair sum here. It is taking real income out of the region. Can I have your reassurance that you will raise the issue with your colleagues and tell them that in terms of fiscal policy towards the region they may want to take this into account, because if they don't they'll be getting some even more undesirable outcomes?

Dr. Naysmith: Following up on that, the small business that I'm talking about-the gentleman involved who's shown me his books and been very open-says that if he has to pay this increased rate on his second premises he will close the second premises rather than pay the money. I'm sure he will, because looking at the figures it makes sense.

Jim Knight: Obviously, it's important that businesses like that take advantage of the appeal process that is in place, just to make sure everything's been applied properly. I know that the traders in Dartmouth, where I focused a lot of attention, have got together to ensure that the whole of the town's been properly assessed by the valuation office. Some businesses have benefited from that.

It's worth just saying, though, that from my recollection of the stats on this in the South West, offices have been by and large winners through this revaluation process and retail have been losers. So there are winners as well as losers. I think the overall effect on the region is that it's the second hardest-hit region in the country after London, but it's to the tune of about 3%. It's not a spectacularly large figure, but I will bear in mind your advice and take that back to the Treasury.

Roger Berry: The knock-on effects of 3% become bigger.

Jim Knight: I'm happy to continue to look at it.

Roger Berry: Thank you.

Q133 Dr. Naysmith: In September, Minister, you wrote to local authorities asking them to sign up to the prompt payment code. Do you know how many have done so?

Jim Knight: Yes, in among all of this I do have some statistics. It's gone reasonably well. All the NHS trusts have signed up to it. I'm encouraging the foundation trusts to do the same. As of 18 January, 29% of the local authorities had signed up. The councils have a pretty good record in terms of their prompt payment. I'm continuing to push them to sign up to the code and I don't rule out publishing a list of the 71%, or whatever it becomes, who haven't signed up, along with their record in prompt payment, if that's what it takes to get them to do so. So I'm pleased with how the health community's responded. I think the local authority community is more of a mixed bag and I'm going to keep working on them to try and get it sorted.

Q134 Dr. Naysmith: Is there any scope for implementing the code with private contractors and subcontractors, particularly those who are in receipt of public contracts and public money?

Jim Knight: Yes, there is. We are cautious about putting too many priorities into contract, in terms of our public procurement generally, but we are also looking at-the Department for Work and Pensions is an example-developing the supplier charter so that we can put some of those other things in the charter, and I would certainly want prompt payment to be one of those.

Dr. Naysmith: Thank you.

Q135 Mr. Drew: On the rural economy, you've heard how I managed to try and put this together with green recovery, which I thought was quite a novel way of making sure we'd covered the two issues in the short time available.

I'd welcome your views on how we can use our more rural areas. Your constituency mirrors mine-market towns but with a rural hinterland and lots of arguments about wind turbines, biomass and all that, so there is the energy issue. Can I also look at what I'm interested in, which is food? Given that we will go back to being much more of a food producer because of the reality of food security issues, to what extent should the South West be driving on to say that we're going to be the-dare I say it?-prairie belt or equivalent for the country? We're going to produce enough food to make Britain much more self-sufficient. That is one way in which we can be green. We can be about recovery and drive our food processing industry and restore it to health. Is that the sort of vision that you see? If so, how are you going to deliver it?

Jim Knight: A small question. I certainly think that the Department for Environment, Food and Rural Affairs's food strategy, published a few weeks ago, should be seen as a fantastic opportunity for the region, our agriculture and food and drink industries. In the presentation I gave to the Cabinet on the region last month, I started by reminding them of the importance of the food and drink industry to the region. We have our traditions that we can build on to develop a more sustainable industry, perhaps one that can rediscover its employment potential as well become more sustainable and deliver some of the climate change targets that we need to deliver along the way. Perhaps we take food for granted a little too much when we think about the regional strategy, but the strategy that Hilary Benn produced is a really interesting document that we can build on.

On the wider green agenda and the rural agenda, clearly-other witnesses have referred to it-the development of broadband has been a priority for me as Regional Minister. It is partly a priority because of the rural nature of the region. Nationally we look at the delivery of broadband as being something that the market can do about 70% of and there is a 30% gap in delivering on the universal commitment in the "Digital Britain" document, and obviously much more so in respect of next generation broadband. In our region, that percentage becomes over 50% because of its rural nature.

As I said in my presentation to the Cabinet, the potential for a region to transform how it delivers public services and to transform its economy through better access to broadband is much greater for a rural area. That is why I am a strong advocate of the broadband levy. It is unfortunate that we don't have all-party support for it because it will ensure that we can deliver for the not-spot areas in regions such as ours and help the rural economy. I think that it is important that broadband is part of the RDPE axis 3.

Beyond that, green, in itself, offers us opportunities. Beyond the odd bit of controversy about onshore wind, my constituency, which you kindly referred to, is looking forward to taking advantage of some of the jobs that come from offshore. You asked about skills, and, generally, we should be building the full range of skills so that we can do more to reduce energy consumption as well as producing more recycled forms of energy.

Q136 Chairman: Are you confident that the back-up industries, for things such as offshore wind, across the region are working on the same sort of timelines? I picked up that there is a boat-building firm somewhere in the middle of Somerset, which produces and designs the boats to service offshore wind but is having great difficulty finding a coastal location. That is something the RDA might want to look into in due course. Are the connections being made between the big idea-such as the wave hub or offshore wind-and the feeder industries and businesses?

Jim Knight: That is very much where we have been trying for, and I think actually achieving, some added value as a regional economic task group. In the same way, I was talking about broadband and we now, as of last week, set up a specific group focused on trying to build the jigsaw around broadband, because it is quite a patchy picture across the region.

Chairman: Pound for pound, it is better value than building roads or anything else.

Jim Knight: Yes, absolutely. Similarly, we have done the same with the green group, where we have set up a specific working group that has been working for some months now just to try and look more strategically at things such as those supply-chain issues. If there are specifics around companies, such as a curiously located boat builder that needs a more sensible location, I am very happy to look at those with that group to see whether we can help out. The RDA, as you say, is the ideal person to go to first of all.

Q137 Chairman: And the green economic recovery group-is it more than a talking shop?

Jim Knight: I think it has produced some very useful outputs, actually.

Chairman: Can you give us some examples?

Jim Knight: I can drop you a line on exactly what it has done. It reports to us every month on the progress that it makes. We would not be a low-carbon economic area, we would not be now building some of the supply side of the wind farm industries, if it wasn't for that group coming together and helping us focus our minds on how things are, but I will give you a bit more detail in correspondence.

Chairman: That would be helpful.

Q138 Dr. Naysmith: Finally, the Government, as you will be aware, have identified five business sectors that they want to promote: digital economy, low-carbon technologies, life sciences, advanced manufacturing and the creative industries. Thinking about this list, the South West is strong on some of them and not quite so strong on others. What should it be doing? Should it be focusing on its strengths, or trying to improve on its weaknesses?

Jim Knight: It needs to do both in the end, obviously. I have been quite focused on trying to play to strengths, because I have to be mindful of what is going on in other regions. If we take our focus on trying to get up to speed on everything that the Government are trying to do in the "New Industry, New Jobs" agenda, then we might miss the boat on a few things, but we are ensuring that we consistently remind people that in aerospace, we are the second most important region anywhere in the world, and we have all sorts of skills that come out of that in terms of advanced manufacturing and composites. We have those silicon skills in the west of England area and we have built on that.

The creative industries are clearly an area where the region has huge strength-led by Bristol, but not exclusively in Bristol. We can align ourselves to what Government nationally are looking for and move ahead much more quickly, which we have been able to do in a number of cases, and then start to partner with other regions where appropriate.

On marine energy and wind energy, the RDA's vision in deciding to invest in the wave hub-I visited the Combined Universities in Cornwall site where they are doing a lot of the research attached to that wave hub-is something we should be benefiting from nationally and linking with areas like the North East, where Clipper opened its wind turbine factory just last week. Because we now have a national strategy that is being replicated by regional ones, we can work out how we fit together much more easily than we used to be able to. It becomes a much more coherent strategic framework that can then give us confidence as a region. Rather than just worrying about competing with each other, we can work out how we can build strength with each other.

Dr. Naysmith: That is very interesting, thank you.

Q139 Chairman: A very quick final question, picking up on something that one of our previous witnesses said. I am concerned that uncertainty over the regional spatial strategy was causing business and others to have genuine concerns about growth in the region. What is your position on the region's spatial strategy going forward?

Jim Knight: I cannot comment much for legal reasons, and it is with my ministerial colleagues in CLG. Naturally, I agree that having a regional spatial strategy adds certainty and that is good for the economy. That is why I would take issue with those who do not think we need it and who would abolish it. I think that would create massive uncertainty and be really bad for business and employment in our region.

Chairman: Thank you very much, Minister.