Oral evidence: The work of the Department for Business, Innovation, Science and Trade, HC 685

Oral evidence, 20 October 2026.

Witnesses

Jonathan Reynolds and Amanda Brooks.

Chair

Welcome to today’s session. I am delighted that we are able to welcome the Secretary of State to the Committee, along with Amanda Brooks. Thank you very much indeed for joining us this afternoon. We are about to kick off our work plan for 2027 with our big business conference in the House of Commons on Monday, followed by a national road trip and a big nationwide survey to understand exactly what it is that business, trade unions and consumer associations want us to have a look at over the course of 2027. We are very pleased to be able to kick off that process by asking you about your priorities. Welcome back to the best job in Government. Welcome back to the best Committee in Parliament. You have been out for a bit. You have come back to a Department that covers most of the domestic economy. Give us a sense of the vision and priorities that you have brought back to the Department.

Jonathan Reynolds

Thank you, Chair. It is lovely to be with you, colleagues. As well as being two of the last few Business Secretaries, I was a member of this Committee as well, you might remember, in a previous guise. Thank you for that work you are kicking off, which is really important. This is the best job in Government. The role of this Select Committee is really important within that. It may be worth pausing for a second to comment on the fact that it is a genuinely new Department. I know that, having done the DBT job before, people might see it in that way, but this is something new for people who are aficionados of how we have structured the Business Department in the UK in recent years. The fact that we now have a Department of 8,500 people with an annual budget of circa £17 billion a year is a real, significant change in terms of the strength of these issues within Government. It is a privilege to come back to be in charge of them. We cover a lot. I will give you our four public objectives, and I have not spoken of these before; I am revealing them to the Committee in the proper way. The first is to lead on place-based reindustrialisation, using the industrial strategy as the mechanism for that. The second is how we make sure we have better lives and vibrant local economies, and that markets work for citizens. That is everything from our work on making work pay to our SME policy, to how competition law works in the UK and all the rest of the things the Department does. The third—again, a reference to the new Department structure here—is that science, innovation and technology have to be at the heart of growth. We have to embrace technology to do that. The fourth is that we have always had, you might remember, a commitment to an open, connected trading economy. I would add the words “secure” and “resilient” to that, reflecting the world that we are in. There are a lot of things, but you have to put it down into those four headings for the fundamental objectives of this Department.

Chair

You have managed to join and restructure the Department just ahead of the Budget. You will know that business is screaming about the cost of doing business. What have you asked the Chancellor to prioritise?

Jonathan Reynolds

I am not going to shock you all by telling you what may or may not be in the Budget, or what I would want to be in it. I would look at the public comments of the Chancellor that you have just referenced—the reference to the cost of doing business and the need for breathing space for business. I endorse those words entirely. There has to be acknowledgement that there is no answer to all the things we, as parliamentarians, and our constituents want to see as priorities for the state and for the Government unless we have a stronger economy than we have had in quite a few years since the financial crisis. The last set of GDP figures is very encouraging, but it is sustained economic growth that will do that. There has to be a reflection that business is the only way to do that. What the Chancellor has said has been significant in that.

Chair

Does that mean we are going to see help to reduce energy costs for business?

Jonathan Reynolds

No specifics, I’m afraid, but as you know, Chair, I have made addressing the UK’s industrial electricity costs one of the things that I think are fundamental to the success of so many parts of the economy. I am very proud that BICS is being launched this year. That is a significant scheme for 10,000 manufacturing businesses. I will always make the case that that has to have been one of the issues we were right to address when we formed the Government in 2024.

Chair

Is it fair to say that energy costs were top of the list that you asked the Chancellor to act on?

Jonathan Reynolds

I cannot tell you what was in that letter. I think that it is true to say that, if you got any collection of businesses, big and small, in this room and asked them, they would reference energy costs.

Chair

You are not deaf to that.

Jonathan Reynolds

Yes.

Chair

You have the chance to integrate science and technology spend with real power now that that has moved into your Department. Hitherto, that has been a little disjointed from the industrial strategy. Will the Industrial Strategy Advisory Council now become effectively a reindustrialisation strategy council?

Jonathan Reynolds

The mirror to the success of the industrial strategy was that it gave not just the Department but a whole range of other Government Departments a proper analytical tool as to where the opportunities lay. We have seen that. I thought that we saw, to differing extents, quite a few of the Government Departments respond to that. What was formerly DSIT and UKRI were part of that. The spend split for UKRI’s budget, which is broadly a third on what we might call curiosity or knowledge-led research and two thirds more applied to the priorities of the industrial strategy, is right. That work had already begun. I think that that is acknowledged. The premise of reindustrialisation will use the industrial strategy as the tool to do that. I would add into that, as well as the IS-8 sectors, acknowledgement of foundational industries, which reflects existing work in the Department. There is a particular story to address that everyone here will be familiar with, which is how we take our success in those sectors and have more stories of brilliant British innovation resulting in commercialisation, scale-up and significant employment in the UK. I imagine that every single Member of Parliament here has heard too many stories of, “This brilliant idea originated in the UK, but we did not get the economic and commercial benefits of it.” I now think that this Department is ideally placed to play a role in correcting that.

Chair

We will have more things to say on that tomorrow when we publish the Government response to our investing in the UK report, which was, I am afraid to say, produced under the last Administration, but quite disappointing. Do you think that the lever of science and technology spend is going to be easier to apply to the industrial strategy sectors now that it is within your Department?

Jonathan Reynolds

There is obviously more coherence from having it in one Department. I am trying to say that I believe the work that needed to happen had already begun. Our job is to make sure that that is followed through.

Amanda Brooks

To be specific, UKRI had already shifted around £9 billion of funding to focus on the industrial strategy eight sectors, so that pivot had already been taking place in the way that the Secretary of State has referred to. As part of that, around £4.5 billion is supporting innovative firms in those sectors. It is fair to say that the changes were already happening. How we bring those conversations together going forward as we work, including with the Industrial Strategy Advisory Council, which you have just mentioned, is going to be really important.

Chair

Is it still the intention to put the Industrial Strategy Advisory Council on a statutory basis?

Jonathan Reynolds

Yes, I would still want and expect that to happen. As you will know, Chair, parliamentary time is under pressure, and there are a great many priorities to address. In my former life as Chief Whip it is something I have experienced a great deal of. We are still committed to putting the Industrial Strategy Advisory Council on a statutory footing.

Chair

Let me cover off a couple of bits of topical news before we dig into some of the questions about reindustrialisation. We have published the Government reply on Royal Mail today. In that reply, you said that you are open to Ofcom proposing new statutory powers to help it grip Royal Mail’s performance, which continues to disappoint the nation. Can you confirm today that you will look favourably on any Ofcom proposals to take or seek new powers to ensure that Christmas deliveries are safe and Royal Mail begins delivering what the nation expects?

Jonathan Reynolds

Yes. It is a straightforward answer. I am not satisfied; I am not happy with the performance. I think that you say in your letter, quite rightly, that there is some statistical improvement, but it is not the level of service people expect. I know for parliamentarians—we have had this in oral questions on Thursday and in other correspondence with Members of Parliament—that it is one of the most significant issues they are facing. We have tried—and done, I believe—some significant things for the long-term future of Royal Mail. I want a successful, prosperous Royal Mail. You can think about how we worked pragmatically in terms of the ownership bid that came in prior to the election. We have recognised the need for regulatory reform in terms of the USO, which Ofcom leads on but has significant public interest. We negotiated, as part of the takeover, no dividends being paid until performance levels had improved. We do not run the business day to day, and you would not expect Ministers to do that, but I believe we have put in place some of the things that are necessary for success. I am going to have Royal Mail and the union in for a conversation about this. I need to respond to what MPs are being told. Royal Mail is a really important institution and business, and I know that it has significant ramifications when it is not hitting the levels of service. I can promise you, Chair, whether it is working with Ofcom, or with any part, any key player or any stakeholder in this, we will do what we can to make sure that Royal Mail is the service it needs to be.

Chris Bloore

Welcome, Secretary of State. Just going on your answer there, Ofcom says it has reliability as a top priority, but Royal Mail has not met its first and second class standards for nearly a decade. We had Ofcom in the House of Commons as a group of MPs just last week. Ofcom has said that it does not foresee requesting any new powers from Government to deal with this crisis. If that is the answer from Ofcom, do you have faith that Ofcom is fit for purpose if it foresees not requesting any additional powers from Government?

Jonathan Reynolds

All I can say is that Ofcom is a very important regulator. If it told me that it believed it needed more in its toolkit around this issue, of course we would respond openly, transparently and pragmatically to that request. I have followed the day-to-day running of Royal Mail pretty closely, as you would expect. I know how the union feels about parts of this. I know and believe that there was a chance for a significant improvement in both the morale and the industrial relations in the business from the new owners coming in. I think we would all recognise that things had got quite difficult before then. An improvement in service will not just come about. It has to be, “What is the business plan to do that? What is the embrace of innovation and technology? How can there be a continuity of people working for the business?” There has been a significant turnover. All this has to be addressed. If Ofcom needed something else, of course we would be open to that.

Chair

We have also published today the letter from the head of the FRC confirming that the FRC will take oversight of the audit investigation into failures at Manchester City’s auditor. She has also confirmed that she does not have the powers to effectively investigate or prosecute directors who are not members of the accounting profession. Does this not underline exactly why audit and accounting reform is essential? Will you revisit the decision to bring that legislation back to the House so that we do not have the kinds of accounting scandals such as the one we have heard about at Manchester City again?

Jonathan Reynolds

My interest in audit reform goes back to being a member of this Committee, when some of these issues were there. I believe that there is a package of measures within there that I would like to see enacted. In these Departments there are so many priorities we have that, when we bid into the legislative Sessions, there will be tension on priorities in terms of those bids that have to go in. There simply is not enough time to do everything. You try to think creatively as to how you can fit different measures into different Bills or what you can put together to do it. I recognise the case that you are making. There has been no reduction or lack of commitment from the Government in terms of this agenda. We are still committed to it. It is a matter of finding the right way and the right space to legislate.

Chair

You would agree that the Manchester City case underlines the necessity of audit reform in our country.

Jonathan Reynolds

I would not link the two things together. I am talking about the broad issue of audit reform. We are all familiar with that. In relation to Manchester City, I know there is a lot of interest in this, but I am not involved in any of the football-related aspects of this. These are two separate things to the trade and investment relationships that we hold in the Department.

Chair

You would say that the case for audit reform is an imperative in and of itself.

Jonathan Reynolds

The case is recognised. I am not aware of any significant opposition in Parliament. I know that some changes have happened in the absence of primary legislation, going back to the original Kingman proposals. Parts of that have been enacted; I recognise that. In terms of the wider principles of making sure that there is the regulatory oversight of directors and those parts of it, yes, the case is still there.

Chris Bloore

I should probably declare an interest that I am an Aston Villa season ticket holder and a member of the football APPG. Secretary of State, you met the chairman of Manchester City in September to discuss UAE investment before the commission’s findings were made public. Can I ask whether the Manchester City case was discussed at that meeting? If so, was it raised with you that the UAE might retaliate against the guilty verdict by withdrawing investments such as the Oxford-Cambridge corridor?

Jonathan Reynolds

I will declare that I am a Sunderland fan, which as a Manchester MP is a particularly helpful construct, as a non-threatening football brand. I moved to Manchester when I was 18 in 1998 and I love Manchester. I am so proud to be an MP for the city. I am so proud of the regeneration of the city. There is an identity among the Greater Manchester MPs that reflects the incredible story. Let us be clear: we do not have enough stories of post-industrial regeneration and success in the north of England. Manchester stands out for that. I know some of the leading people from the UAE. I am our Trade Minister; you would expect that. In terms of that meeting—and indeed, I can tell you, any meeting—no one has ever asked me to get involved in the Manchester City sporting case, separate to our trade and investment relationships.

Chris Bloore

That is good to know, because I suspect you would agree that there should be no geopolitical interference in our national game and that people will want to hear that from Government moving forward.

Jonathan Reynolds

Absolutely, Chris. I would go further and say that the Premier League itself is one of our most important traded exports. It has tremendous coverage around the world. I know that there is interest in it, shall we say. I can tell you, to be frank, that not even any constituent—and we like our football in Greater Manchester—has ever asked me to get involved in it. I deal with the trade and investment side. We all, as Labour MPs, have a manifesto commitment to the trade deal with the GCC. The UAE is our biggest trading partner within the GCC, so you would expect those relationships to exist. In fact, we are just waiting for the signature on the GCC deal, which is an important one. I can tell you that I have never been asked to get involved, and nor would I, in the football side of this case.

Chair

Thank you for clearing that up.

Mr Joshua Reynolds

Secretary of State, welcome back. I hope you are receiving post in my name, as I am for you—and in the name of the Member for High Wycombe as well, surprisingly.

Jonathan Reynolds

Well done for sorting the pharmacy issue out—I can say that.

Mr Joshua Reynolds

The Defence Secretary has said that the Ministry of Defence will play a central role in the UK’s reindustrialisation. The Chancellor has said that reindustrialisation is an opportunity to support the NEETs crisis. Your Minister for Reindustrialisation has said that reindustrialisation is maximising tradable sectors in every part of the country through innovation. What does that actually mean?

Jonathan Reynolds

For me, reindustrialisation is based on the industrial strategy and the IS-8. As I say, I would add the foundational sectors into that. There is always an ongoing debate in the UK about where the line sits between services and manufacturing. In many cases, that is artificial. Take an iconic manufacturer such as Rolls-Royce. It generates quite a lot of revenue from services alongside that from the products that it produces. Let us be clear and remember. What are the IS-8? They are the sectors that the data tells us represent both our strengths and our greatest opportunities. The commitment to reindustrialisation recognises that there are some specific things required in policy terms to support those sectors.

Amanda Brooks

In the context of what you were just asking, defence is one of those IS—industrial strategy—sectors. That fits very much with what the Secretary of State for Defence has spoken about, and indeed the current Chancellor. If you look at some of the challenges that we have on NEETs at the moment, this week we have seen the publication of a number of jobs plans reflecting on the different opportunities in those sectors, which will enable future employment opportunities. They are making some big commitments. We know that these sectors, on average, pay about £8,000 more than employment in other sectors. There is a really important link between all those different issues, as you rightly say.

Mr Joshua Reynolds

The IS-8 include financial services and the creative industries. Is reindustrialisation the IS-8, and therefore is part of reindustrialisation creative industries?

Jonathan Reynolds

The core of this is the IS-8. Of those IS-8, five are perhaps considered traditional manufacturing. Three would be services. Can you make anything in the UK without support from the financial services sector? Can you export anything without access to insurance? Can you run your business without access to professional and business services? This is probably something this Committee has looked at, Chair. The UK has a history of producing a new document and a new economic theory and basis every year. That has to stop. The Prime Minister’s commitment to reindustrialisation is absolutely the right one, but we should build on the empirical tools that we have, and that is the industrial strategy.

Mr Joshua Reynolds

Finally on that, the chief exec of Make UK urged the Government, when it comes to the definition of reindustrialisation, to put some flesh on the buzzwords. Do you understand why Make UK might think that reindustrialisation is just a buzzword?

Jonathan Reynolds

I always listen to Make UK because they are very wise people. That is a fair point and I would add to it. I think that we would all want to consider, across Government and Parliament, what the metrics and KPIs we would want to use for that are. I know that there are a lot of colleagues who want a straightforward jobs-based KPI. Perhaps this Committee might be able to assist in that. We might ask the Industrial Strategy Advisory Council for its wider observations. I think that it is quite helpful to bring into account things such as the degree of business investment that is going in. Perhaps we might want to consider some of our exports as part of that. It is not just about the definition; it is what we are measuring going forward.

Chair

That is very helpful, Secretary of State. You are telling us that we do need to put some tighter definitions on what reindustrialisation needs to deliver in terms of hard outcomes.

Jonathan Reynolds

I think that we all would want to know what we are measuring. What are we agreeing on? What do we disagree on? What do we want to see more of? That helps policy in Parliament and in Government.

Chair

We will certainly offer you the benefit of our advice on that.

Dan Aldridge

Thank you, Secretary of State. The Resolution Foundation found that more than half of UK postcode areas saw falling living standards during the last Parliament. How are you and your Department going to drive growth in every postcode with that in mind?

Jonathan Reynolds

That is the central challenge for the UK, not just for the Department or the Government but Parliament. Every other challenge, whether it is public services or political fragmentation, comes from the fact that we saw for the first time, and we have seen since the financial crisis, I would argue, an end to what I would call the classic British working class story. My parents only wanted one thing, which is that my sister and I have more opportunities than they did. We are all familiar with the challenge that comes from that. We put into account not just the performance of the economy but things such as the housing market. That tells us where we are at. How do we do that? Going back to those four objectives, we need to know where our strengths lie, where we need to drive investment and where policy has to support that. That is the industrial strategy. We need vibrant, dynamic markets. That is everything. The Prime Minister’s recent announcement that we will move on non-competes is significant because you are taking a major ask from the tech sector that is, essentially, classic employment policy. This Department now represents both of those things and we can make that activity what we need it to be. Our plan to make work pay is perhaps more contentious in some quarters. I think we would all recognise, when we are talking about growth in every postcode, that there have been times in British history where the overall national economy has grown but people have not felt it, either in their locality or because of the job they do. It is essentially a class-based assessment as part of that. We have to put science and innovation at the heart of our economic policy and embrace technology. That is harder than people sometimes accept, because technology disrupts. There are political challenges for all of us in that. We have to remain an open, outward-facing economy—the UK has always been a trading nation—while recognising that we are not living in the late 1990s in terms of free trade and WTO rounds. We have a very different trading situation. We have to think about our national resilience within that, while remaining open and outward-facing to the world.

Dan Aldridge

One thing that always concerns me as a Member representing a coastal town is whether we are being measured, because we only act on what we measure. Is the Department assessing whether living standards are improving in those postcodes and whether there is the improvement that we hope to see in those postcodes such as mine in Weston-super-Mare?

Jonathan Reynolds

It has to be not just measured but felt. People do not always feel national statistics, and we have to recognise that. It is what Amanda has just said about why the IS-8 sectors are so important. That is because they pay wages that people feel and can appreciate. The whole Government take into account economic statistics. That is not just a matter for the new BIST Department. The Prime Minister himself has made it clear—and those different elements of the policy menu add up to a recognition of it—that people not only need to be told the country is doing well, but they need to feel it.

Dan Aldridge

Do we have metrics to see the actual growth in postcodes, but also the feeling? That would be really helpful.

Jonathan Reynolds

You mean breaking down GDP growth on a granular level. I do not know whether the country has that, to be frank.

Amanda Brooks

We can break it down at regional level, but probably not down to the point of every postcode. Unlike Bhutan, which has an excellent focus on tracking happiness in its economy, we do not have that level of detail at the granular level you are talking about. We do, though, track, across multiple different ways in which the Department’s interventions work, what is happening in places. We know that over half of UKRI spend is outside London and the south-east, so increasingly spread. There is the work that the Prime Minister has announced to amplify that through local innovation partnerships, but also what we do on trade deals. We have always tracked what the impact is on regions of the country and, indeed, the devolved nations. We look at that, but, as you say, at what level of granularity? What you are challenging us to is a whole new level.

Dan Aldridge

Even within local authority levels, we have North Somerset council, which is largely far more affluent than my constituency, where the deprivation actually lies. That has massaged the statistics quite significantly. Even if not postcode, constituency level would be really good to be able to identify whether people are feeling the benefit.

Chair

You are identifying a constraint. It is quite difficult for the Prime Minister to prove we are delivering growth in every postcode.

Jonathan Reynolds

I really want to stress that it is not just a slogan. I can honestly tell you that I think of the decisions we make through the lens of making sure that prosperity is genuinely a UK-wide thing. When, for instance, we had the issues around the rescue of Harland & Wolff, it really mattered to me that one of those shipyards is on the Western Isles and there is not a lot of intervention, historically, from national Government in a place such as the Western Isles. That made it important. If you look at the recent investment we made in the SaxaVord spaceport in the Shetland Islands, again that is thinking about how you make sure that this is relevant to every bit of the UK.

Sarah Edwards

The Committee is quite interested in the focus that the Government have on procurement as being a means to spread some of that money that the Government have at their disposal. It is said to be worth about £395 billion in 2024-25. With the “Buy British” agenda being quite a key policy, we heard on this Committee that we had not quite established what British meant and we were waiting for a paper to tell us how we defined that and whether that was a British company or a company that had British workers, etc. I was wondering about how you thought, when it comes to the Government’s procurement, a British company can compete when we know that it is incredibly expensive at the moment to be a business, to produce products and to compete against potential bids from other countries. I will get on to how that interacts with the EU. How do you see that working? It is not necessarily going to be the cheapest option, but it might be for the country, economically, the one that spreads around the most social value and wealth.

Jonathan Reynolds

“Buy British” is focusing on jobs and growth in the UK. There would be many people, I would assume, who would attempt a sophisticated definition of that. If you are asking about a non-UK shareholder based in the UK, that is British jobs and growth to me. A Nissan would be a great example of that. That focus is in line with our international commitments, so not some sort of return to pre-war protectionism and turning our back on an open and connected, outward-facing, internationalist trading posture. There are different definitions that exist. If you looked at the sovereign AI UK nexus test, I think it covers where your HQ is, your R&D presence and whether you could become a category leader in the UK. The definition is less important than recognising what we are trying to do. There is a problem to fix here, which is that many brilliant, innovative British firms tell us at times that cracking our own procurement domestic market is harder than some of the overseas ones. There is a problem to fix as part of that. That agenda covers the changes the Cabinet Office has made to social value. In some of the big inward investment decisions we are currently working on, we are looking at, for instance, how advance market commitments could work, so there is a guarantee to procure part of that investment from domestic firms. What is the quantum programme, Amanda?

Amanda Brooks

It is ProQure.

Jonathan Reynolds

It is a specific initiative in the quantum space to recognise the brilliance we have there and how we want that to be part of investment decisions in the future. “Buy British”, to me, is a focus on making sure that we are getting the benefits of jobs and growth in the UK.

Amanda Brooks

There are other actions that we have been taking to make it easier for businesses to plan ahead. For example, publishing the pipeline of what steel requirements we are likely to require enables businesses to plan, think ahead and bid accordingly. It is the transparency around those procurement pipelines and new guidance on how we are going to utilise national security exemptions in areas such as AI.

Chair

When we talk to defence contractors or health contractors, which are the two turbochargers of the £385 billion that the country spends on Government procurement each year, they consistently tell us that they cannot see the demand signal in their sectors.

Amanda Brooks

That is noted.

Chair

What are you going to do about that?

Amanda Brooks

As I say, it is happening in some sectors. If it needs to happen in others, that is something that we can talk to colleagues about.

Jonathan Reynolds

That is not a new problem. Thinking back to my previous tenure, I could honestly say that the Secretaries of State for Health and for Defence recognised the problem, took it seriously and put initiatives in place. I would not say that the problem is fixed, but it goes back to the point in answer to Sarah’s question, which is, “What is this about?” It is about fixing a problem. It is about fixing a problem where we are not linking opportunities from British procurement to the brilliant innovation and start-up sectors that we have. We have to fix that.

Sarah Edwards

If we then look at how we are obliged under our trading relationship with the EU to allow for treaty state suppliers to bid into our procurement system, is that not at odds with our “Buy British” agenda? We know that we are still ironing out some of the challenges around the Made in Europe agenda. Ultimately, we are trying to achieve the same ends, which is to protect ourselves from the Chinese imports, but we do not seem to be working very closely together on doing that. We seem to be cutting each other off, rather than looking at the benefit on both sides of that. How compatible is that?

Jonathan Reynolds

That is a good segue. A desire to see British firms benefit in some way to a greater degree from British procurement is a different issue from the Made in Europe agenda.

Chair

That is not how the French see it. French officials will say to us, often quietly, “You want a ‘Buy British’ strategy on the one hand, but on the other hand you want to be part of Made in Europe—and that sounds like wanting your cake and eating it.”

Jonathan Reynolds

It might be how they want to present it, but they are two different things. I will give you an example. If you look at our automotive subsidies, a very significant proportion of those go to European manufacturers. We are not reverting to protectionism by wanting to solve this problem that is, quite rightly, given to us by our own firms, which is how we can play a role in what the state and other Government Departments are doing. On Made in Europe, I am very proud that the Government have simultaneously sought to improve the trading relationship with Europe, which is in all our interests, and do work around the rest of the world to maximise opportunities there. It is absolutely the case that we should work together with the EU on that agenda. We are trying to manage the same problems. We are trying to make sure that we are in the strongest possible position. If you look at, for instance, the integrated nature of automotive supply chains across the EU, it is to the detriment of both the EU and the UK if we are not continuing what we have in that. That is the basis of the discussions that we are having with the EU. The case to work closely together is a strong one.

Sarah Edwards

Is that moving in a more positive direction? At the moment some of the drafts suggest it is assembled in Europe, and therefore we are excluded from that, because their interpretation is EU rather than Europe. We also have some semantic problems here. There is some room, perhaps, to help define that. Does that feel like that is going in the right direction to protect our car industry, so that we can still trade with the EU and keep our British jobs, while also acknowledging that it is a much more challenging situation?

Jonathan Reynolds

Made in Europe is a priority not just for this Department but for every Secretary of State because of the significance of what it would represent. You will know that it is a thread running through lots of different items of European legislation. The Industrial Accelerator Act is the obvious first example of that. We want not only to fix this problem to the benefit of the EU and ourselves, but to do so in a way that provides for the greatest degree of certainty for business going forward. If it covers lots of different aspects, how we do that in a way that gives people reassurance that we are not going to face these unnecessary trade barriers is very important. There is a lot of work going on on this. It is a very significant priority for Government. I have a lot of confidence in the argument that it is in our interests, but also in the EU’s interest, to work closely together on this.

Antonia Bance

I will return to steel, but I want to touch briefly on steel and public procurement. We are all, I think, very proud of PPN 022 and the impact it is beginning to have on the procurement of British-produced steel. There are still some oddities, such as the fact that DfE requires EAF steel in its procurement. At the moment, that cannot be made in the United Kingdom, and perhaps DfE ought to get with the programme on that point. I wanted to ask specifically whether you thought, Secretary of State, all publicly supported projects should be subject to public procurement note 022. We have seen some significant public supported projects—I think of Net Zero Teesside, for example, which has decided to procure its steel and have it fabricated elsewhere in the world.

Jonathan Reynolds

I am also very proud that this Government have gripped steel. Frankly, it was not always easy to even get on the agenda in previous Parliaments, especially when you look at what has happened around the world, especially in Europe, and how the CapEx need requires the state and the Government to show an interest in this. Obviously with any procurement we want to see the benefits in the UK, but that is subject to our international commitments and the free and open tendering system that we would have. On steel in particular, this issue comes up a lot. Where the UK makes something, it is, in the main, used for domestic demand. The problem for the UK is that we have not been making enough of a range of products and the more we would make, the more would be in domestic procurement choices. That means everything, so not just the more dramatic interventions we have had to make in some parts of our steel industry but also the overall business environment. The key thing for steel is the expanded supercharger policy. We have ended the incredibly disadvantageous position domestic steelmakers were in, in terms of very heavy electricity use and how we compared on that. To me, the success comes from some quite dramatic things that we have had to do, such as recalling Parliament to preserve our domestic steel industry, but we are improving the business environment through energy and the changes to procurement in terms of social value. Trade defence is obviously a part of that.

Antonia Bance

We will come back to that.

Jonathan Reynolds

Where we have the business case to make something in the UK, it will, in the main, feature in domestic procurement.

Antonia Bance

Where public money is being spent not in traditional public procurement, should those projects use British-made steel?

Jonathan Reynolds

My instinct would be that I would expect them to. If you have a specific case where that has not happened, I would be interested in what the business decisions were that had led to that outcome. All this is part of our wider commitment to our WTO commitments and our posture as an outward-facing trading nation. In terms of certain areas of cost, particularly because we have had to put trade defence in to deal with the structural overcapacity in steel, which is a feature of the world economy, I would be interested in what decisions had led to a non-British-based choice for procurement.

Chair

We will come back to you on steel safeguards. We just want to pursue this point about devolution.

Sarah Edwards

Forty per cent of constituencies are outside of mayoral areas, mine being one of them, although I am slightly on the cusp because I am a non-voting constituent of the West Midlands Combined Authority, but Staffordshire as a whole is not. On this Committee we are quite concerned about how the Government are going to direct resource and funds, and particularly how it is that you and your Department are going to make sure that these areas do not miss out. A lot of the support has been directed through the established mayoral authorities, and that leaves places such as Staffordshire without clarity. There have been some really good announcements around local share of income tax and the visitor economy levy, and talk about this relationship with vocational skills. The Lichfield and Tamworth chamber of commerce and the Staffordshire chamber of commerce are quite keen to know where we are going with this and how quickly we can get that mayoral authority in place. Business really wants to crack on. How do you see the fact that this this timeframe is not in your gift, but you still have to support all these mayoral authorities with some policy changes that really make a meaningful difference?

Jonathan Reynolds

When we published the industrial strategy, there were some tools in there that applied to mayoral authorities, and there were ones that were available to local authorities to try to reflect that balance. The truth is that we have just been to India on a very successful trade mission with seven of the northern mayors. It was originally their trip. I went to support them, with some other Secretaries of State. The fact is that, if your area does not have one of these mayors, you are going to be at a disadvantage. Let us be honest: you are not on that plane. Going back to that India trip, there were areas that are in that stage. The chair of the Cheshire authority came with us to India, reflecting that it wants to start doing that kind of work until it has the mayoral arrangements in place. We stand ready to support any area doing that work. We are also strongly committed to the Government’s devolution agenda more widely. There are some things you cannot devolve from this Department, such as trade policy or employment law. It is more in the innovation and potential R&D space. We are also looking at how we can potentially even second staff to certain authorities in parts of the country to build up what they will need in terms of economic and business policy experience. When you talk to businesses, they tend to like the mayoral model for engagement, because it is neither too big to be relevant to them, nor so small that it does not get the quality of engagement that they need on those areas. There is quite strong business demand for this model going forward. As areas are on this path, we will absolutely seek to work with them. It is also worth saying that certainly we recognise, and I think colleagues recognise, that, even where areas have a mayor, there are different stages. There are different places in terms of different capacities. Greater Manchester and the west midlands are obviously very established as a tier. We want to support not just more places to go on this journey but areas that already have a mayor. Do they have what they need in terms of economic capacity to do the things they want to do and be the partner to us at that sub-regional level?

Sarah Edwards

Could I ask that we hear some more from the Department about the specific ways that non-mayoral areas are going to receive that additional support? Even if some of those things are not now—hopefully they are next week—it would be really good for that to be well signposted. Otherwise, all the announcements that so far have come out of the Government have always been around that nexus of a mayoral authority.

Jonathan Reynolds

I hear that and I am sensitive to that. To quote the godfather of Greater Manchester devolution, he used to always say, “Never go to Government with a begging bowl. Always go with an offer.” I would say to parts of the country, “Come to us with an offer. What do you want to do? What do you want your local economy to be? If we can support that, we are here to do that. Tell us what you need. Tell us the relationships that you have.”

Chair

Can I check whether the machinery of government changes and the budget recalibration is all now complete?

Amanda Brooks

It is not quite.

Jonathan Reynolds

It is not fully complete. These things are a bit more complicated. Amanda is perhaps the best person to talk about it.

Chair

Do you know what your budget is now?

Amanda Brooks

Broadly, yes. We are still working through the final details of staff particularly and which Department they are going to. We need to go through the Cabinet Office standard operating processes for that.

Chair

What do you think your budget is now?

Amanda Brooks

It is around £17 billion.

Chair

That is DEL.

Amanda Brooks

That is both RDEL and CDEL combined. The split is £2 billion RDEL and £15 billion CDEL.

Chair

That does not sound like it includes UKRI.

Amanda Brooks

It includes UKRI, yes.

Chair

We are about to go through this period now where you have a budget, a 10-year plan, which is allegedly sometime before Christmas, and then a comprehensive spending review, where, again, the timing is unclear. At this stage, what fraction of that £17 billion do you think will be devolved by this time next year?

Jonathan Reynolds

I would not want to put a figure on that. We are deeply committed to this. We have an ask from some of the mayoral authorities. We have to look at what the right functions, rather than some kind of envelope of money, are to do that. The obvious space, and the Prime Minister has talked about this, is around the late-stage innovations, so the model of local innovation partnerships is a key part of that. We have also taken some of our existing programmes, such as the DRIVE35 programme, which is the very significant R&D automotive programme, and given two significant pots of money to the west midlands and the north-east to work on supply chains. We are looking at how we can do this. Taking the commitment we have to it, we have to also make sure that this money is spent on the things that we currently spend it on. The success of devolution, where it has had successes, has been in improving outcomes, but it is a process; it is not an end in itself. As parliamentarians and as a Government, we want to do this. We want to push money down to that level, but we have to make sure that we are not in a situation where we are losing something that is very good in the UK.

Chair

You are describing the classic sector-spaces tension, which has bedevilled devolution for at least the 25 years that I have worked on it. Are you able to give us a rough sense of what kind of fraction you think could be devolved?

Jonathan Reynolds

No, I would not do that at this stage.

Chair

When do you think that begins to get clearer? Is it a 10-year plan timetable? Is it the comprehensive spending review?

Jonathan Reynolds

The “Rewiring the State” White Paper is a significant part of that. That leads into the 10-year plan. Going back to the different stages devolution is at in different parts of the country, it is also about giving people the capacity that they need to make these decisions.

Chair

When a pioneering Chief Secretary first proposed the idea of total place, there were some pretty powerful constraints. There was basically a public services agreement that helped to corral exactly what it was that a local area could spend on. Do you imagine that that kind of approach to intergovernmental relations might be one of the ways in which you can ensure that your objectives are hit, but you none the less achieve the devolution by default objective that the Prime Minister set out?

Jonathan Reynolds

I have always been a fan of that pioneering former Chief Secretary’s work on that particular area and others.

Chair

He was the future once.

Jonathan Reynolds

Conditionality is sensitive in this new era of devolution. Everyone has an interest in making sure that this is a success. We have to recognise that, if you look at the spending review period, the total R&D budget is £59 billion. That is absolutely core to our economic success. I definitely think some parts of that can be spent at this level in a better way. Glasgow, Manchester and Birmingham led on an earlier trial of this, maybe under the former Conservative Government. There has been work in this area. We know what is good, but we recognise that we have to do this in a way that delivers what we all want: more power and insight into local economies, building on our strengths, particularly on R&D. It is something we absolutely cannot afford to do in anything other than a very excellent way.

Chair

It sounds like the process for managing that tension is still work ahead of you.

Jonathan Reynolds

There is some genuinely groundbreaking and exciting work going on between the mayoral authorities and a Department like mine, as we work to pace and work out exactly how we can do this in the best way for everyone’s objectives.

Amanda Brooks

To provide some examples of things that are already under way, the Office for Investment now has people embedded with mayoral strategic authorities, helping them to build investable propositions that will bring inward investment into those areas. On business support, there are 30 growth hubs operating around the country.

Chair

If you have a situation where we are not quite clear about the metrics for judging the success of reindustrialisation, we are not quite clear about the metrics for judging whether growth is being delivered in every postcode and we do not have the fractions of your budget that may be devolved, we can see a policy problem looming that we look forward to scrutinising over the months ahead.

Chris Bloore

Secretary of State, I am sure you will be aware that many small businesses are saying that their costs continue to increase. I suspect that, like everybody around this table, you spend time with small businesses on your high street. I am definitely going to plug The Lounge, which is a lovely cocktail and gin place in Astwood Bank, run by Louise and Karl, who I met last week. They shared with me their concerns about how long they can keep taking on these extra costs to keep their businesses going. You mentioned at the start of this meeting that you may not be willing or able to share some of the measures in the Budget. The Prime Minister has expressed how important it is to him to support small businesses. Do you expect those pressures to ease post Budget?

Jonathan Reynolds

I can absolutely say that I, the Prime Minister and the Chancellor would endorse entirely the case you have made for the centrality of small business to the economy and a sense of local prosperity. If the Prime Minister himself were here, he would acknowledge that, with regard to his record in Manchester, which is one of economic growth and prosperity, a big sense of how people feel about that is that it is a wonderful place to be in the city centre. There are the bars, the restaurants and the feeling of people coming together and enjoying that shared space. I have always been sensitive to the well-established sense a lot of smaller businesses have, which is that it is the bigger corporates that get to engage with Government. We have always been reflective on that. The SME strategy and small business plan was absolutely a part of that. Without talking about this Budget, looking back to other Budgets, it is important to say that we had worked on things such as the doubling of employment allowance in opposition, recognising there would be costs coming from a higher minimum wage and perhaps from employment rights, with the impact of that on some businesses. The agenda that became the small business plan was an attempt from this Department to recognise the levers that we have that would be most effective for those businesses. Tax is very significant, but we have to leave that to the Chancellor. The Commercial Payments Bill will make the UK the best jurisdiction of any major economy to be a small business in, in terms of payment from bigger businesses. The permanently lower multiplier on business rates for retail, hospitality and leisure was a part of that.

Chris Bloore

Can I come back on that? Do you think—I will try for a third time—that perhaps the threshold for small business rate relief might get raised to a more appropriate level?

Jonathan Reynolds

I am afraid that I am too savvy a man to come before the Select Committee and speculate on the Budget. These are pressures that you are quite rightly identifying, Chris. The question for someone like me is what the best ways to relieve those pressures are. What are the things that get to the most businesses? I understand why that is. By the way, something that does not quite get the attention it deserves is the increase in capacity and the changes to the British Business Bank. I am sure I will not be the only parliamentarian where my personal Facebook account gives me endless adverts for the growth guarantee scheme, which is great. We have tried, with the levers we have in this Department, to put in place the things that would make the biggest difference, notwithstanding the recognition that issues of national insurance, VAT and so forth will always be paramount to how people feel the pressures of that. We also, for the leisure and hospitality industry, work with DCMS on licensing changes and any attempt to relieve the pressure on those businesses. I absolutely recognise the case that you are making. When we talk about growth in every postcode, what is present in every postcode? It is small business. That is why they are so central to economic policy.

Mr Joshua Reynolds

The British Independent Retailers Association told the Committee that small firms are operating on the lowest profit margin that they have ever worked on. An FSB report from August this year found that less than 18% of small firms expected to grow in the next year, while 31% said they were going to shrink, sell up or close. Just under 90% of firms reported higher operating costs than a year ago. Hospitality has seen some of the largest falls in payroll numbers, and retail recorded its lowest ever four-quarter average for employment levels in 2025. That is a pretty bleak picture when it comes to the confidence that businesses are having, especially in retail. What are you going to do to make sure that we fix that in the short term?

Jonathan Reynolds

Those are all organisations that I have a great deal of respect for, but if you ask anyone how they feel right now, you are not going to be able to separate out wider policy from the fact that what we have seen in the strait of Hormuz between the US and Iran will have economic consequences for the UK in terms of inflation, industrial costs, energy and supply costs. If you are asking for what those figures tell you right now, that reflects a pretty obvious and difficult situation, which even a country such as ours only has so many ways to mitigate. What are we committed to in the short term? On all the areas that we have access to, whether that is payment terms, employment law, access to finance or licensing with other Departments, we are seeking to relieve those pressures. I know what they will ask for more than anything else, and it is reflected in the question about the Budget. I can tell you that that sentiment is represented to the Treasury, but people will have to wait until the Budget to see what the Chancellor’s proposals are.

Mr Joshua Reynolds

As a Liberal Democrat MP, I do not go anywhere without my 2024 Labour party manifesto. On pages 28 and 29 of that manifesto, it said that Labour will replace the business rates system. We are over two years into a Labour Government. When are you going to replace the business rates system, as you promised?

Jonathan Reynolds

That is a question for the Treasury. I have always felt that there are inequities in our business rate system. You are more than familiar with the incidence of the tax and where it falls in terms of disproportionate impact on certain sectors. I absolutely recognise and still support the case for wholesale reform, but on any questions of taxation you are going to have to wait until the Chancellor speaks.

Mr Joshua Reynolds

When I asked your predecessor that same question in July, he pretty much gave me the exact same answer. His opening words were, “As you know, that is an HMT decision,” which is pretty much your same words. Is that not part of the problem? Even with the machinery of government changes that this Government have introduced, the issues that affect businesses most, whether that is business rates or energy costs, are not the responsibility of the Secretary of State for Business but other Secretaries of State.

Chair

Your Department has expanded, but could we expand it a little further and have a business tax policy as well?

Jonathan Reynolds

If you wish to put proposals to Government, Chair, I would be very interested in receiving them. Everything that affects businesses cannot be in one Department. I am tempted by the proposal, but it is not possible. If you ask some businesses what the biggest issue facing them right now is, they would probably say extended producer responsibility, which is a DEFRA policy. Some would cite perhaps the emissions trading scheme, which is a DESNZ policy. Others might talk about transport connections in their area. The ZEV mandate for the automotive industry is a Department for Transport lead. I have always thought that we do quite a lot in this expanded Department, and some of those levers are hugely important. Also, you have to be, and I want to be, that kind of shop steward and voice of business within Government. People come to us on a whole range of things, partly because I find that an enjoyable part of the job. I like being out there. I like being accessible to people. I have at times even had colleagues say to me, “You are just the voice of business.” You are like, “That is exactly what I am seeking to be as the Secretary of State for Business, Innovation, Science and Trade.” We do that. For a Chancellor, what they are doing in their Budget affects every aspect of the state and Government, so you are going to have to have that distinction there. I do not think you could ever move taxation policy for business into the Business Department. That would not quite be coherent, but it is an interesting suggestion.

Sarah Edwards

I am very interested in the focus that the Government have on high streets. It is important to all of us around the table. Tamworth has a very pedestrianised high street area. You have visited it and shopped on it, so you have that claim to fame. You will be happy to know that Tamworth was recently touted as being one of the happiest places in the UK. Going on the positive vibe in that sort of line, I met two young, small entrepreneurs last week, one called Harry, who owns a coffee shop, Crave, and the other, Kai, who started a vintage fashion store called Stay Tidy. They are fantastic. They are encapsulating some of the positive potential for young people to go out there. I wondered whether you could comment on how your strategy is going to start to steward some of the funds and policy decisions into areas such as Tamworth. A £300 million-ish pot has been announced. How might that be used to help councils to incentivise this, giving cheaper rents or bringing some of these derelict buildings back into ownership so we can get not just young entrepreneurs but all entrepreneurs into those derelict spaces and inject some life back into these places that mean so much to people?

Jonathan Reynolds

I remember our trip to Tamworth market. It is one of my favourite ever anecdotes. I will not share it with the Committee because it is incredibly amusing but probably not appropriate for this session.

Chair

Maybe in writing.

Jonathan Reynolds

There is a wide range of goods and services available in Tamworth and I can endorse that. That is all I will say at this stage. One of the happiest places—absolutely. For people who may not know the geography of eastern Greater Manchester, my constituency is a collection of towns, each with a very strong identity. They are historically market towns based around wide-scale manufacturing in or close to the town centre, people getting paid in cash weekly and walking through. It has been a hard transition for us. There is no doubt about it, but it is a story that is familiar all across the UK. When I talk about how people feel about prosperity, the high street and the town centre is a disproportionate part of that. Even if you have great employers on an industrial estate nearby, if you do not see and feel them in the same way, that is a significant part of it. In terms of different bits of Government, I always think of MHCLG as place-based; BIST you think of as business-based. The two things coming together is the key to the success of that. To be fair to the previous Government, there were some interesting things put on the statute book that are now coming into effect, such as high street auctions to make sure that derelict properties come back into use. That is a big issue in both Hyde and Stalybridge for me. You have to look at things such as how the business rates system works. Those will be the fundamentals in an area. I think the fund that you are talking about is an MHCLG fund, so it is not directly within there.

Amanda Brooks

It is, yes.

Jonathan Reynolds

Where I have seen successful regeneration of high streets, you sometimes need a little bit of public money to do some of the anchor things. One in Greater Manchester that is often cited is Altrincham, where the food hall brought prosperity back to the wider town centre. We had—I do not know whether the new Department has continued, because it was changed in the time I was not there—the joint MHCLG-DBT high streets unit.

Amanda Brooks

We do not have that, no.

Jonathan Reynolds

That changed.

Sarah Edwards

That is what I was hoping that you might say—that we have a joint unit that brings together these two really important Departments on this.

Jonathan Reynolds

We had a joint unit. I believe that that has changed. I would totally agree, because people, and not just MPs, want the coherence between those two parts of Government.

Amanda Brooks

It is fair to say that we still work together incredibly closely. Partly this reflects the creation of No. 10 North, where BIST, MHCLG and the Treasury are all together working on local growth in different ways. We are working really closely with MHCLG at the moment on the development of a new high street strategy. Please do not worry that because there is not a joint unit we are not spending time together. We absolutely work together.

Chair

When is that out, Amanda? When is that high street strategy out?

Amanda Brooks

I believe later in the year.

Chair

Before Christmas, perhaps, in the winter.

Amanda Brooks

I would hope so, she said carefully.

Antonia Bance

This Committee has taken a real interest in the impact of the steel safeguards imposed earlier in the year. Yesterday, we spent some time with a number of people from the downstream steel industry. I spoke to a supplier and a processor of high-spec aerospace-grade metals from the east of England who were talking to me about the difficulties with categories 14 and 27. They need approved supply because they service aerospace and defence. They are not able to source it within the safeguards without extortionate costs, so they are just about to move their work to an approved mill and machinists in India. I spoke to people from a company from the south-west, again in aerospace and defence. They said to me that the annual four-year cost of the additional cost would be £600,000 in tariff payments, and that would send them under. They were also considering moving production abroad. I spoke to people from a company based in my own constituency, who spoke to me about the difficulty that both aluminised and galvanised material were in the same category, category 4, and that one was not replaceable for the other in their area of work, which was replacement exhausts for the automotive industry. The quota was being taken up by one, leaving little space for the other. I spoke to fabricators, who spoke about the difficulty of not having an exemption for fabricated products, as they do in the similar regime in Canada. Secretary of State, would you accept that, while the policy intent of the steel safeguards was sound, and something that we all support around this table, the execution of the design of the tariffs and the quotas has been poor? They desperately need more detail and granularity, for example using commodity codes within the categories, perhaps at the 10-digit level, rather than the level that exists at the moment, and we need that exemption for fabrication. Given that, when will we be reviewing the safeguards? Will you commit to listen to the downstream industry and make some changes?

Chair

There is a lot there, and there is a letter coming to you setting out what was a really alarming set of evidence that we heard yesterday.

Jonathan Reynolds

I am sensitive to that. Let me just put some information that I think is useful, and then I will come back specifically on your request at the end, Antonia. Thank you for recognising why we need to do this, because this is about more than steel. On that point of a resilient economy, people based in the UK have to know that, when we are facing structural overcapacity, we will defend the UK’s position. If we do not do that, why would you be based here for the long term, particularly when the European agenda is definitely tilting to a more trade defence-based posture? If you take steel imports as a whole, three quarters or 75% of steel products in the UK by value, and over half by volume, fall outside the measures’ scope. I know that people are concerned, but let us recognise that the majority of products are falling beyond the scope of the trade defence measures. Obviously we do not want to put tariffs or trade defence measures on products that you cannot source from the UK. It is true to say, in how you implement a measure such as this, because of the nature of the identification of the eight-digit SIC codes, that there will be some products caught up in that because of the characterisation. I hear your call for more specificity in that. You have to balance that against what is enforceable and how customs operates within there. The policy intent is clearly not to increase the cost of products you cannot purchase in the UK. If, in some cases, more products that can be bought in the UK were bought in the UK, that would leave more space in the quotas for products to be imported that we do not produce, because of the nature of that. In relation to your request for a review, we are committed to reviewing these measures. You cannot, to be frank, do that too quickly, because, when you are doing trade defence measures, people will obviously import. They will stockpile in advance of that, but that is just rational human behaviour. You have to see these measures working through. Will I commit to working with this Committee, with the evidence you have just given there and what you have heard from evidence sessions and the downstream users, to make sure that we have this in the best place it can be? Yes, I am more than happy to give that commitment. I would ask the Committee to recognise that there will be some cases, because of the way this is done, where we perhaps cannot get an absolute assurance that absolutely everything can be separated into domestic production and imports. It is not quite as easy as doing it in that way, but we are, in terms of the intent of the policy, seeking that outcome.

Antonia Bance

There were further tweaks made to this policy after it was published, as the Department was in receipt of new information. I absolutely take the point about the full review. We are just now seeing the implications of the safeguards after the stockpiling period and the run-through period has finished. Are you in a position to commit to making tweaks if new evidence comes forward at this point about what is and is not made in the UK and what is and is not available? I would suggest that, given that HMRC is able to differentiate, it ought to be possible for the quotas to differentiate in the more granular way that I have set out.

Jonathan Reynolds

This was in my absence from the Department. You are right to say that, following feedback, I believe the quotas were increased in order to mitigate some of the adverse consequences that you are describing. There is pushback on the other side on that, in terms of what that means for domestic steel producers. You are always seeking a balance between these two crucial aspects of the industry. I believe that further changes would come after a review of how the trade measures are operating. Amanda, you would have been more familiar with this in my absence.

Amanda Brooks

We are barely a quarter into the new regime, so just beginning to see data coming through. The Secretary of State has already said, absolutely correctly, that the commitment has always been there for a 12-month review. Absolutely, if there is evidence that comes forward or a change in circumstances more generally that means that we need to reconsider, the Department would want to have the opportunity to do that and to advise the Secretary of State accordingly.

Chair

We will take that. Thank you very much.

Charlie Maynard

The EU steel market is 125 million tonnes of production of steel a year. The UK steel market is 2.5 million, so it is 50 times smaller. Through this set of regulation, essentially we are condemning our downstream fabricators to have to buy from an incredibly small market. As you are very aware, in many cases there simply are no producers, or there is one producer, which in effect is now a monopoly, so it can sell to a UK producer or it can sell to the US. We heard lots of instances yesterday where the steel producers were selling to US customers rather than UK customers. There is no legal obligation for them to sell to UK customers. This looks like it is heading for hundreds and thousands of jobs being lost in the downstream sector because we are determined to stay outside of the EU steel single market. We are massively going to lose out across all our manufacturing heartlands, which is what your Prime Minister, and my Prime Minister, is looking to reindustrialise. We are heading in exactly the opposite direction. Is that fair?

Jonathan Reynolds

No, I do not think that it is, but it is a fair question to ask what the impact will be. On our relationship to the EU, I am confident of a resolution to the UK-EU steel issue. We are not determined to stay out of that. It was one of the first topics of conversation I had with Commissioner Šefčovič because it is so important to us. Without intervention from the Government in terms of ownership and trade defence measures, the UK would be the first major economy to not have a steel industry. That is what we were heading towards. There is absolutely no doubt about that. It was a decision for someone sitting in my chair to make. Was I willing to do that? The answer was no, to be clear. The impact on downstream users is something that is acutely felt. As I say, in my absence, to be fair to the former Secretary of State, mitigations were put in place in terms of some of the quotas around that. We have to acknowledge that where you have, in the global economy, deliberate structural overcapacity in some sectors, of course there is a short-term dividend to that. You are getting something below market value. That is attractive if you are a purchaser of that product. I am afraid that, as parliamentarians, we need to extrapolate out what the logical conclusion of that is. It is dependence in the long term in a way that is not in our long-term strategic interest.

Charlie Maynard

I am not arguing that. I am arguing that we are outside of a market that is 50 times bigger than our own—the European Union market—and that is why we are being stuffed, rather than, “Yes, let’s stay dependent on China.”

Jonathan Reynolds

If your desire is for closer co-operation with the European Union, I would share that. Europe has interesting lessons for us in terms of the level of EU production that meets EU demand, which is much greater, even in this world of global overcapacity in world markets in steel. It is doing some things that we could replicate as part of that. We are seeking to resolve the problems around steel that resulted in the EU’s trade defence measures causing us some significant problems.

Charlie Maynard

We are negotiating now an SPS agreement for agriculture, which is essentially a single market for agricultural products. Would a good result be a single market for steel, à la SPS for agriculture?

Jonathan Reynolds

In all these matters with the EU, you need to make a distinction between trade defence measures and what might be called single market alignment, which would be a different ask. It is helpful conceptually to keep those in different places. At the UK-EU reset, so the summit that is coming up in November, there is a core set of things you will be familiar with there. SPS is one of them. ETS is one of them. Electricity co-operation is one of them. Then you have a whole range of additional issues that are not part of that but are reasonable. It is worth the conversation at the same time because they are UK-EU issues. Think of Made in Europe, steel and the rules of origin, which is an outstanding matter from the TCA. Because of the nature of that conversation, you touch into those things. It is all part of the Government’s desire to build a closer relationship with the EU, based not just on what we would see as being in our interest, but what is in the EU interest as well.

Chair

There is an ambition for deeper alignment on this.

Jonathan Reynolds

I do not think that we are in a position where we would be able to announce a definitive solution by the summit, given the times that we are on. I want to tell you that this is a live and active part, as well as the wider summit agenda that you will be familiar with.

Sarah Edwards

In the roundtable we heard from various different downstream suppliers. One thing that they found quite disjointed was that the steel strategy that was released is all about supporting British Steel. We are back to what I was asking you about earlier. The Department for Education, in its procurement requirements, is asking for EAF steel because of the carbon targets that it is trying to meet. You cannot do that because we cannot do it, so we are going to be importing that steel from elsewhere to meet that target. How is the steel strategy fitting into what the Government is then putting out as procurement? Are you aware of some of these mismatches? Are you going to review that and correct it so that we can get a steel strategy that supports our recently renationalised British Steel?

Jonathan Reynolds

I will look at that. In Scunthorpe, we need a transition plan, which will likely be to electric arc furnaces. At Port Talbot we are in that process of industrial transformation. Those are perhaps the two high-profile examples of UK-based steel production’s transformation. We have other electric arc furnaces in the UK. It is important to stress, because we have this big need to transition the blast furnaces to low-carbon technology, we should not forget that there are parts of the steel industry that have already made this journey. It is important to stress that. It might be that there are particular products the DfE is trying to procure that relate to that. As I am not familiar with its procurement requests, let me take that away and perhaps come back to you to give you a definitive answer on what the balance is between those things.

Chair

Alongside steel, automotive is a real sector of concern, as is defence. We have been pressing the Government, along with two other Committees now, to set out their definition of sovereign capabilities. We do not think that you can have an economic security strategy unless you have specified the sovereign capabilities the country is trying to grow and defend. It was really heartening to see the fourth priority that you have set out today about secure and resilient trade. As the MOD begins to issue packages of procurement included in the £285 billion of defence spending that it now has earmarked, do you think the Government are going to be able to move towards a better definition of the sovereign capabilities that we need to grow and defend for the future?

Jonathan Reynolds

I can see why those Committees have that interest. I will ask Amanda because she will be familiar with work in my absence. Whether you could definitively do that without a degree of flexibility that might be required in some decisions is a genuinely interesting debate. If we look at, say, Speciality Steel UK where we have had to get involved in issues of ownership, a function you will be familiar with that SSUK is the sovereign capability provider of is ammunition, so missile and ammunition casings. Is it the case that we could not buy that from a friendly country? No, that exists. Is it in our interest to potentially keep that capability in the UK? Yes. You perhaps need an index of where that lies. It would seem to me that the key thing would be a consistency across all Government Departments.

Chair

Our NATO allies such as Canada have set that out as the cornerstone of their rearmament strategy. There are short lists that have been issued by two or three different Government Departments. Committees are struggling with tessellating lists from different parts of Whitehall to say, “How do you send a coherent, consistent demand signal to UK plc that these are the things that we absolutely are going to grow and defend in this country?” so that we are not in a reactive policy frame when, for example, we have to suddenly come here on a Saturday to renationalise British Steel. We are interested in whether your ambitions for resilience will take you to a place where we get a better definition of these capabilities for the years to come.

Jonathan Reynolds

That is a genuinely interesting challenge to Government. There would be, knowing other Government Departments, genuinely different, good-faith views on what constituted sovereign capability. To take the example of British Steel, there had to be some pragmatism in that. We were facing a bill of £1.5 billion to make 7,000 people unemployed in a way that was completely beyond our control, in a way that was unacceptable to the UK. That was a key part of that decision. When I look at critical minerals, our critical minerals strategy is a really good example of that need for resilience and sovereign capability. It does not say we can be self-sufficient. That is not realistic. It recognises that we can decrease our dependency on some other countries and set criteria for how exposed to other markets we should be. That is a very good example. I honestly cannot tell you whether other Government Departments think our approach on critical minerals is the right model to follow.

Chair

Jonathan Black, who you will know was the deputy national security adviser, recently left Government and wrote in the FT that, when he looks back over his time in Government, he now observes that there are a lack of cross-Whitehall mechanisms for creating integrated strategy. Is that a problem that you are pointing at here?

Jonathan Reynolds

It would be churlish not to recognise that there is a fair challenge there that comes from someone with serious experience of the system. It goes to the heart of the integrated nature of dual-use technology, the modern economy and the changes to trade, which now involve much greater geopolitical threats. You link it all together and there is, I suppose, at times a danger that, although things have been dealt with for years in a certain way, that is just not the right approach to do it. The NSC brings together core economic and security functions of the state. I would not want people to think that there are things in how the UK operates that do not take that into account and do not balance off the different factors, in terms of trade-offs between investment and security and how you make that coherent together. Could it be better, giving an example of this? That is a fair challenge, definitely.

Amanda Brooks

One area we have been grappling with on this inside the Department, but I think it very much aligns with how you are describing it, Secretary of State, is on frontier and emerging technologies and what we think are the areas where sovereign capability will be really important. How we have thought about this, in partnership with colleagues from other Departments—this is not BIST alone—has been around dual-use technologies that provide the opportunity to drive growth but also strengthen our security and resilience. In the context of the choices that we have made around quantum, semiconductors, engineering biology and other frontier tech that we are investing in as a country through BIST, those are some of the considerations that we have been reflecting on.

Chair

Having a manufacturing industry is pretty core to that, and automotive is core to manufacturing.

Antonia Bance

Has the EU asked you to put tariffs on Chinese EVs as a condition of UK participation in the Made in Europe schemes? Given the market distortion of Chinese state subsidy of EVs, should we not just do it anyway?

Jonathan Reynolds

The stories that have been in the press relate to an agreement between France and Germany rather than a negotiation with the UK, although it is of direct relevance to us. At the minute I can tell you, Committee, that the UK’s position has not changed, which is that we keep this under close review. Some people hear that and say, “Close review means we might be about to change it,” or they hear close review and think we are not going to change it. My point on this is that, if you take the UK automotive industry, 60% of what we make goes to the EU, 20% goes to the rest of the world and 20% stays domestic. In other words, we are an export-led industry where the single most important country by market share is our own. You factor those two things together. That means that different parts of our sector will have different views on this. You will know that, under our post-Brexit Trade Remedies Authority system, businesses can go themselves directly to the TRA. No automotive producer has done that. That is the position. We keep it under close review. When I talk about “under close review”, the changes in the market are what we are looking at. I look at the significant increase in imports into the UK of Chinese EVs in the last 12 months, and that is part of it. I am balancing our own interests in terms of being an outward-facing economy with our own domestic market. As soon as there is or is not news in this area, I will, of course, share it with the Committee. Referencing a quote I gave to The Guardian fairly recently, I want to make it clear that I want to work with European partners because we are facing the same pressures. If we make a decision on any element of trade defence, it is because I deem that to be in the interests of the UK. What other countries do impacts on that because of trade diversion. If one country puts up significant trade defence measures, you can expect some of those products to come in a disproportionate sense to your markets. What goes on in other countries is important, but I hold to, “We make a decision based on the best interests of the UK.” That involves working with other partners, but that is the basis upon which any decision is made.

Chair

Help us decode this. Lord Sarwar went on the record to say that Britain and the European Union must “work together and act in lockstep” to tackle Chinese dominance in the automotive sector. Chancellor Merz and President Macron have issued an incredibly ambitious set of proposals for trade defence. We are trying to understand whether the UK Government are going to act in lockstep with the Macron-Merz initiative. If they do not, how on earth do we think we are going to draw closer to the European Union when DG TRADE is really clear with us that it is not going to allow any kind of backdoor for over-subsidised Chinese goods to come into the European Union through Britain?

Jonathan Reynolds

On that point, let us be clear that goods could not come into the single market through Britain. We do not have a significant Chinese OEM in the UK at this stage. If you were assembling Chinese components on a model similar, let us say, to how Nissan began in the north-east of England, you would not qualify under the TCA, under the rules of origin, for that. This is about market share in the UK rather than products coming from the rest of the world into the UK and then into the single market. Trade is a fairly complex area. I look at some things in the press and I do not think they have quite thought through how trade works and how trade agreements interact with each other.

Chair

To be clear, your argument is that the TCA is effectively a locked door against over-subsidised Chinese goods coming into the EU from Britain.

Jonathan Reynolds

It is not true to say that Chinese products come into the UK to enter the single market. That is not how the interaction of these trade relationships works. Of course we both face a similar problem, which is the tremendous increase in Chinese automotive exports. We are actor agnostic in terms of trade policy, but China is the country that has an industrial policy that is more significant than any other, has a size and scale, and as I am always keen to say to colleagues, involves a great deal of innovation. This is not just about cost. There is a lot of R&D and innovation going on in China as part of that. We would want to work with colleagues around that. In terms of some of the press stories about the Franco-German agreement, that is all about the detail. That has not been perhaps surfaced to the degree to which we would be able to definitively say that that is what the ask is of the UK. Yes, Anas is right to say that we have to work with like-minded countries on a similar set of problems, but I am also pointing out that perhaps the interests of the EU as a whole for its automotive sector might at times be slightly different from how we see it in the UK. That is just a fact of where our industry is orientated and where it is.

Chair

Will shared trade defence against Chinese over-subsidisation be one of the issues explored in the summit on 20 November?

Jonathan Reynolds

I am certainly willing to talk, and have been talking, to European colleagues about a shared set of problems and how we resolve those.

Antonia Bance

Staying on the topic of automotive, are we likely to have good news on the ZEV mandate flexibilities coming soon?

Jonathan Reynolds

We certainly had good automotive news in the last month, including £850 million of investment from Bentley and McLaren. It was a delight to go and inspect the McLaren cars and have a drive around the track in one of them. We have also seen some indicative news from Nissan that is predicated on the ZEV mandate. You will know that the Department for Transport owns the ZEV mandate. We have shown before, as a Government, a willingness to be pragmatic based on what other countries have done and where the consumer is. You will have to wait for the formal response to that consultation, which I believe is before Christmas.

Amanda Brooks

The consultation is due to close this week. Once the consultation is closed, the Department for Transport will go through the normal processes and then respond.

Chair

We have a cliff edge coming on EV batteries at the end of the year. Are we confident that everybody is on top of that problem and they are going to solve it by 1 January?

Amanda Brooks

There is an awful lot of engagement going on between the UK, our Ministers and indeed commissioners, but also across the sector, with European and UK auto manufacturers, and indeed with EU member states. There is lots of activity pushing towards a conclusion.

Jonathan Reynolds

It is important you mentioned rules of origin because it is sometimes assumed to be part of the wider Made in Europe trade defence conversation. It is a distinct issue, as you know, left over from the TCA. What are we seeking to do? We are seeking to recognise that it is in the interests of both member states of the EU and the UK to continue the very efficient supply chains that are geographic Europe‑wide. That is the nature of that industry. I do not think it is in our or their interest to add further trade frictions to that, especially when the big challenge is competition from the rest of the world.

Chair

I want to move on to artificial intelligence and a couple of questions on trade. Before we get there, I want to close off some questions on employment rights.

Antonia Bance

On guaranteed hours, we heard from USDAW in June its evidence to the Committee stating that the low-hours threshold should be set at 48 hours and that any lower threshold than that would make workers worse off than they are now. The consultation says that the Government’s preference is for eight to 20 hours as the threshold. This preference was set out by the previous Secretary of State. Do you have a similar take on what the threshold should be and do you refute USDAW’s evidence?

Jonathan Reynolds

If you have a consultation, you have to be willing to listen to the consultation responses. That is the premise of a consultation. What are we trying to do here? We are trying to put in place a framework that gives a person who is currently on a zero-hours contract, and who is working a consistent and regular number of hours each week, the option, if they choose to exercise that right, to a contract that reflects those hours. The key piece of evidence that we are looking for is, “Is there a point in the economy where people are routinely working more hours than they are contracted for?” That has to be the guiding principle. I would say that 48 is very high. Most people working on a full-time contract are probably working full-time hours in the main. I know USDAW very well. I am a member of USDAW myself, I should say. Like I do with all submissions to consultations, I will look very closely at the case that it is making. Again, I have no hesitation in saying that we have always sought to implement this significant package of measures in a way that works not just with unions but with business as well. Most businesses would have a different view when you talk to them about the low-hours threshold, but the objective is clear. It is about finding the right level at which to set the low-hours threshold that will give the maximum effective implementation of the policy.

Antonia Bance

You do not think there will be distortionary impacts. If it were set at 20 hours, would there be a bump of people whose contracts suddenly turn out to be set just above that?

Jonathan Reynolds

This is the case that, if you do not cover every single worker, there will be some people who are disproportionately getting additional hours as part of that. Nobody originally envisaged the low-hours threshold to be as high as that, but we are talking about a consultation. It is a serious consultation. We will listen to the case being made. I have had that conversation several times; I will look at the point being made. As I say, I doubt many people who are not already on full-time contracts are routinely working more hours than a full-time contract has, but we shall see.

Antonia Bance

I will move on to employment status. Many of us were very glad to see the long-awaited employment status consultation. Many of us hoped that it might go a little further. Might we see action on employment status in this Parliament?

Jonathan Reynolds

I am sure you listened to my well-received speech at the Labour party conference, Antonia, where I referenced this directly.

Antonia Bance

I did.

Jonathan Reynolds

This is a complex area. The space that needs the most attention is the line between what is currently classified as a limb (b) worker and self-employed. That is the space where—it is not just delivery, but all kinds of things, for instance hairdressing—you are seeing a lot of distortion in the labour market. I have a very clear idea of how to fix that, in terms of substitution clauses, how they are used in contracts, what the assumptions should be at employment tribunal and where the burden of proof should lie to change that. That is a priority for me. This is a question that I get quite a lot, so I have to make this clear. What I am talking about here are the areas within my control on employment rights, so access to the minimum wage, holiday pay and all those things. This is different from the tax question. That is quite complicated. The public do not always understand that there are three employment statuses in the UK, effectively, in terms of your employment rights, but there are two in terms of tax. I will need to legislate for those changes. It is subject to a third Session Bill. Again, this is an area where, frankly, it is not just in the interests of the 1 million or so workers who would be in that space. Businesses themselves ask for a level playing field, quite rightly, in some of these sectors. They are asking for that clarity in the law to be put in place.

Antonia Bance

There is one final question from me on employment rights. This Committee is very much looking forward to visiting Amazon’s Coventry warehouse in the coming weeks. As new access powers come into force, companies like Amazon are prepared to spend millions on union-busting activity, including using AI to surveil their own employees. Do you have confidence that the penalty level set out for breach of access rights is set at a level that is enough to deter any company from bad behaviour?

Jonathan Reynolds

The safeguards to access are an important part of the package. Nobody has anything to fear from those. Some of the most productive and successful parts of the British economy are areas with significant union density. We could look at automotive or aerospace, for instance, as good examples of that. The regime that has been put in place is effective and will be proportionate to what is required. This is a significant part of the plan to make work pay.

Chair

I am going to move us on to artificial intelligence, which is now a major new part of your Department’s responsibility.

Dan Aldridge

On 12 October, the AI Minister set out the Government’s plans for managing the risks of AI. A lot remains unclear. This is a fast-paced and moveable feast. One of the things that I am keenly aware of is that it has been well over a year since the Government’s SME digital adoption taskforce published its final report. This really matters to constituencies like mine in Weston-super-Mare. We do not have the infrastructure of cities and we rely on volunteers and support services. When AI is used by lots of people in the sectors that dominate our economy, whether that is in retail, health or social care, it is often shallow adoption. Micro-businesses do not have the time to do that. When are businesses in Weston-super-Mare and across the country going to start seeing the benefits of this taskforce and get a sense of the tangible progress that has been made?

Jonathan Reynolds

First of all, let me pay tribute to the AI Minister, whose work you referenced there. This is one of the most challenging subject areas in any developed economy. He is doing an absolutely terrific job both on engagement with the public and parliamentarians and on the policy agenda. Some of the most exciting examples of the adoption of AI have come to me from small businesses telling me about them. I appreciate that we would not say we are at a point where the adoption of these capabilities is as widespread as we want it to be. The SME digital adoption taskforce is a key part of that. The objective is to deliver this by 2035. An update was published earlier in the year. I would be more than happy to write to the Committee and tell you exactly where that is at. This goes to the heart of the balance that we are seeking to strike, Chair. When people see or hear alarming things about AI on television or in the media, they want to know that we are doing the right things to keep them safe. I think that we are. At the same time, we have to be open to a transformative technology. In some of the recent GDP figures, we are starting to see—it is not definitive—that the sectors that are doing best are the ones that are perhaps most exposed to AI adoption. We have to seek to use this to the benefit of the UK. It goes across a whole range of things, frankly. If you think about the pressures on small business owners, whether that is on time, the people they employ or the capacities they have, there are functions using AI that can add a whole range of things to make people’s lives easier. That has to be something that we are excited by.

Dan Aldridge

One of the things that I noticed was that four of the 10 recommendations were not implemented, and some of those seem really important. One of the top lines was appointing a Minister to be accountable for SME digital and AI adoption. We have the fantastic Kanishka Narayan, but having that in the portfolio is really important. We also do not have a replacement for the European Digital Economy and Society Index in terms of that fast-paced data that we need to be able to monitor SME AI adoption. It is really important. Could we get a reflection back, at some point, from the Department on that as a tool? To my point earlier, we only act on what we measure, and we are not measuring SME adoption at that local level. That is really important.

Jonathan Reynolds

That is very constructive and very helpful.

Sarah Edwards

We heard evidence only last week about frontier AI and where that could be going. We have heard concerned warnings. We recently did a trip to India. Through their lens, AI was very much mission-driven. It was very clear where they wanted it to be deployed across Government and the economy. That helps us to identify what types of AI we would like to see and which we can put in the category of, “We are not so sure about this”. Some of the panellists who were in front of us last week profiteer from flooding social media feeds with far-right hate and all kinds of things. They are the same people who would quite like us not to regulate AI. I just wondered whether you have thoughts about this and whether you are pushing on how to put in amendments to the Cyber Security and Resilience Bill to deal with some of this, so that we do not have these huge multinationals running away with AI while we are left to pick up the pieces.

Jonathan Reynolds

There is a lot to that. First of all, we cannot envisage every single use of AI that we will see in our lifetimes. Technology is moving so fast. The applications are so vast. It is an incredibly significant general purpose technology. We have to acknowledge that we are already seeing some terrific things. Cancer is being diagnosed more quickly because of AI. We have talked about small business adoption as part of that. There is a tension here, Sarah. First of all, there is the question of regulation. Historically, it would be true to say that the UK’s strength is in regulating the application and use of a technology in the sectors that it is in—that is a strength—rather than attempting to do a general purpose regulatory effort on things that we might not fully understand the implications of. You are talking about the Cyber Security Bill. That is a great example. We will strengthen that Bill in the legislative process to protect critical national infrastructure. First of all, that is what good regulation looks like. Where is technology being used? How will we ensure that people are safe as part of that? The wider question on the regulation of AI has to recognise that the frontier models are being created by US firms. To an extent, China has open-weight models that lag slightly behind, but we can see where that will go over time. It is no use to anyone to have a regulatory system with no cards to play in terms of market participants. It would be very easy to get to that point. Keeping people safe at the minute is about retaining access to those frontier models, not just for the AI Security Institute but for our security services. When a capability is created, we have to know what it will mean for the UK. We have to have access to it to keep the UK safe. In Parliament, we have to reflect that there are some tensions there, but that is what we need to do. We should have some confidence in what has already been set up, such as the AI Security Institute, and the capabilities of our security services. Where we need to strengthen the law in areas to keep critical parts of the UK safe, that is what successful regulation looks like.

Sarah Edwards

We have an opportunity with the Bill that is coming back to us. As you have already stated in this session, “if parliamentary time allows” is the classic phrase. Where are those other opportunities? Yes, we need to regulate for its application, but I do not know whether we have always been clear about quite what we would like that application to be. We should try to be ahead of this and not be led by very wealthy global corporates.

Jonathan Reynolds

You have to use—I can tell you this, as Chief Whip—the parliamentary opportunities that you have. The Cyber Security Bill is a good example of a piece of legislation already under way that we can add those amendments to. There will be more in this space. The third Session has not been decided yet. This Committee—I really mean this, Chair—could give us a really interesting perspective. In a parliamentary system like ours, we all support and believe in the checks and balances and routes that we take on legislation, but how can we make sure that we keep up to date with the technology? We talk a lot about—I have had this as Chief Whip—Henry VIII powers, but we may need some areas where we give ourselves, with appropriate safeguards, the ability to regulate.

Chair

I am conscious that over the course of the 19th century there was not one Factory Act; there were 20 Factory Acts as technology and its perils began to change. Some of those Acts were pretty hard fought and quite time-consuming in coming. The AI Minister has said that you will look at amending the Cyber Security and Resilience Bill. That is at Report stage in the Lords. Either you are going to accept some Back-Bench amendments in the Lords or lay Government amendments of your own. The only latitude that the Commons then has is to amend the amendments. Is that basically what the AI Minister means when he says that parliamentarians will be engaged in getting reform done this year?

Jonathan Reynolds

To your point on the many Factory Acts, we had the factories here. It is different.

Chair

We have AI here too.

Jonathan Reynolds

We do, but it is not quite the same. We led on industry. We could lead on regulation. This is not quite the same picture. We are affected by industry, but the frontier models are US-based. We have to recognise that that is what makes this a much more significant political, regulatory and policy challenge. I will defer to Amanda if she knows better, but I believe that is what Kanishka is intending in terms of the amendments. I know it is at Report stage in the Lords, but you have to take the parliamentary opportunities that you have. This is not an opportunity to pass up.

Chair

You accept that the only chance that the Commons has to table amendments is, in effect, by amending Government amendments or Lords Back-Bench amendments. That is the legislative opportunity for the Commons this quarter.

Jonathan Reynolds

I accept that it is more limited, but I still think it is the right vehicle to take.

Chair

Are the Government going to introduce mandatory AI incident reporting?

Jonathan Reynolds

I would defer to Kanishka’s speech on this. I would not want to prejudge his work. I do not have it in front of me, Chair, but the premise of the amendments that the Government will table are the things that he identified in his speech.

Chair

Is it going to include legislation to clarify liability for harm by AI agents?

Jonathan Reynolds

I would have to write you on that. I will clarify that for you.

Chair

What about laws to embed, through statute, evaluators in AI companies?

Jonathan Reynolds

The core of the proposals that we are seeking to look at both domestically and internationally, in terms of the Prime Minister’s stated intentions for our presidency of the G20, are around the standards and safeguards in the testing space, which is where we saw the Hugging Face incident.

Chair

That could include at least the embedding of independent evaluators.

Jonathan Reynolds

The test would be, “What retains access to frontier models?” There is no point having a regulatory regime that results in us losing access to the things that we need access to in order to keep the UK safe.

Chair

That sounds like it is still moot. Peter Kyle decided not to put the AI Security Institute on a statutory footing. Has that policy position now changed?

Jonathan Reynolds

I do not believe it has, but I am not sure what the argument would be for changing something that is working very well.

Chair

Is there an argument to introduce laws that could seek a mandatory slowdown in the capabilities of frontier models?

Jonathan Reynolds

We are not in a position to be able to do that unilaterally domestically.

Dan Aldridge

The Cyber Bill has been years in the making and these feel like rather last-minute amendments. While we have been sitting here, we have seen that the AI Minister has tabled some amendments and DCMS is looking to table amendments to this based on external factors and external events that have caused real concern and worry not just to the UK but to the global community. How can we make sure that we are keeping cyber-secure and cyber-aware when we cannot even get the Bill through without feeling like we have to keep adding extra bits on to it? What is going to happen when we pass the Bill? Are we going to have to open up something else?

Jonathan Reynolds

I would push back quite strongly on that, Dan, because I would not call them last-minute amendments. I would reference the fact that the technology is moving so fast that nimbleness is required in Government to use the vehicles in our parliamentary system to do the things that we need to do. As we look at the challenges today, they are different even from the ones six or nine months ago. The challenge for all of us, as parliamentarians, is how we give ourselves the tools that we need at the pace that we need, given the pace of technological change.

Dan Aldridge

That is all fine and we can capture that in this Bill, but what happens when we pass it? I was working on informing this Bill when I was at the British Computer Society before I came into this place, and for years in actuality. Once you pass the Bill and it becomes an Act, we lose the opportunity to add anything else to it. When external factors come in and hit us, what is our vehicle?

Jonathan Reynolds

If we need further legislative changes, we have the legislative process. This goes to the heart of the conversation that we were having. What might we need to consider in future? What do we believe are the appropriate powers for Government and Parliament to move at pace as challenges change? To be frank, this is one of the underweighted elements of the debate. Based on how quickly technology is changing, it would be reasonable to expect the situation to change over the traditional timeframe of the passage of an Act of Parliament. Again, much of this is not about domestic activity alone; it is about international co-operation. You have to recognise that that is a key part of it. We should have some confidence in the institutions that we put in place, like the AI Security Institute, and ensure that they retain access. I go back to the original challenge. It is a misconception to think that domestic activity alone is the answer to this.

Chair

We may need enabling safety and security legislation for AI that allows Ministers to implement safety laws at the speed with which the technology is changing.

Jonathan Reynolds

If we look at our aspirations for some of the regulatory powers or some of the sandboxing powers that we want in order to develop great British businesses in the UK, there is a difficult question as to what is the right balance in the powers that we give to Government. This is the so-called Henry VIII argument, where you use secondary legislation to change measures in primary legislation on the statute book. It is something that, as parliamentarians, none of us likes. We are very sensitive when we put those into things. We might just need an honest conversation in Parliament about how we do that going forward. I am not in any way suggesting that we move away from the correct and traditional approach, which is to have an Act of Parliament that seeks to do something specific, then have a Second Reading on the principles and go through the detailed stages. There will be proposals, as any Government would have, for the third Session of this Parliament, but we have to talk about this question of technological change versus the legislative process.

Chair

That is certainly something that we were considering when it came to the EU, for example. This was going to be the proposal that the EU reform Bill was going to take. Mr Maynard, I am keen to move on to trade and the EU.

Charlie Maynard

I will stick with this for a moment, if it is okay. Government and Parliament’s job is to keep our citizens safe. You note that US and China is where a lot of the development is happening. What is already happening with all these breakouts is impacting citizens. At the speed of action with which this is happening, it could increase a hundredfold very quickly indeed. I am nervous about this “no cards to play” realistic perspective. It sounds very defeatist. The UK is a G7 nation. We have to play our role here domestically and internationally as a convening force. I am not at all suggesting it is easy, but we have to find ways to stand up to these very large hyperscalers and to have control over this rather than ceding control entirely to them. You do not seem to see it that way.

Jonathan Reynolds

No, I would push back strongly on that, Charlie. It is not that we have no cards to play. We have some cards to play. Some countries do not have cards to play. We are the third most significant tech nation in the world. Every other country would want to be us other than the people who are one and two. We have some cards to play. It is about being clear-eyed. We are keeping the British public safe. I do sometimes hear, not necessarily from parliamentarians but in the wider political argument, proposals that I can see might gain some populist support, but they would not keep the British public safe because they would effectively result in us losing the access that we currently have, which is the fundamental thing that we need to retain right now.

Charlie Maynard

If I may, Chair, let us say AISI says, “That model is unsatisfactory. We do not think you should release it, Anthropic,” for example, but Anthropic goes ahead and does it. What are we going to do about it? Is the answer that we cannot do anything about it and we have to live with that or do we have a plan?

Jonathan Reynolds

If I may, with all due respect, that perspective is where we are having problems with public opinion and discussing this as parliamentarians. You cannot take a model and somehow say, “That is entirely safe and could never be used for nefarious ends.” It does not work like that. It is knowing its capabilities and preparing the British state—it could be our public services, security services or businesses—to make sure that we are aware of and prepared for that. There is this sense that things come to the AI Security Institute and it says, “That’s a green light. That’s not.” I am afraid it will never be as straightforward as that.

Charlie Maynard

Models have been taken down by the companies themselves. That is already happening. Some of the hyperscalers have said, “We are not going to release this model.” Decisions are already being taken on existing models to say, “That is too dangerous to come out.” Let us say that we have a difference of opinion with the hyperscaler. That is already happening.

Jonathan Reynolds

Therefore, the key thing is making sure that we have, using British expertise, access to those models, knowledge and a feedback loop—

Charlie Maynard

I get that. What happens if they do it anyway?

Jonathan Reynolds

Given the relationship that we have and the role that we play, it would never be as binary as that, to be clear. What we cannot do—this is a challenge to all parliamentarians—is implement measures that effectively lose the things that are fundamental to keeping the UK safe.

Chair

I am keen to move us on to the EU and trade in our final 10 minutes.

Mr Joshua Reynolds

On 12 October, the Prime Minister said, when it comes to our deal with the European Union, “Sticking with the status quo is not good enough.” He said last month that we could look at what George Osborne has said about the customs union; that the Government could look at what we as Liberal Democrats said at our conference about the single market; or that the Government could “go all the way”, which I can only assume means rejoining the European Union. Where are the Government on the European Union?

Jonathan Reynolds

You have just outlined what the Prime Minister has said and how he is going to give a speech about this. If we are producing a 10-year plan, given what we have just talked about in this session, it is impossible not to have some reference to the European Union, because what the European Union does, as we have talked about, whether it is steel tariffs or Made in Europe, has significant consequences for us. He wants to have that conversation. He wants to acknowledge that. For my part, perhaps the more productive part of the conversation is not about some of the models that you have outlined, with no disrespect to Lib Dem policy, but about the shared challenges. We have a US that is adopting a very different and more assertive trade policy than at any point since the war. We have multilateral institutions such as the WTO that are in a very weakened state because of the geopolitical pressures and tensions that go into that. We have global overcapacity in steel, as we have discussed. We have challenges around climate. The better question is, “How can we work with and have influence over the European continent in meeting these challenges?”

Mr Joshua Reynolds

You say we need to have the conversation. When it comes to the European Union, I am not necessarily sure that there is anything that has not been said in the last decade. All of the thinking that can be thought has been done on this. Everyone has a different opinion. What is the Government’s opinion?

Jonathan Reynolds

Again, I would have to disagree respectfully on that because what we do not know is the future direction of Europe. There are some very strong political currents in Europe. There is an evolving policy agenda that reacts to, for instance, the trade shock from China. We do not quite know where that will go, but we know it will affect us. One of the things that I very much admire about the Prime Minister is that you cannot say he dodges the big issues. He confronts them head on. That is his style. He is right to do so. We have to have this conversation. Again, I would steer you towards how we address these shared challenges. With reference to the earlier conversation with Charlie, do not discount what we are working on for the UK-EU summit and its significance for us and the EU. On SPS, we do not have a policy akin to North America, Canada and the US. Our SPS policy is broadly aligned to the EU. Removing some of those trading frictions would be a massive deal for small business, farmers and fishermen. Let us recognise that we already have a significant degree of ambition. What the Prime Minister has done is talk perhaps in warmer and more good faith terms about what he is seeking from the European Union, and we will see whether the EU responds to that.

Mr Joshua Reynolds

We know what different options could look like. We have TCA, TCA plus customs union, Swiss deal and EEA region. We know what many of those different options are. They have been modelled. We know what we would have to give and what we would have to take as a result. Is there a sense within your Department or a sense from the Prime Minister of what you want to achieve and which of those options or models best aligns with the work that you are doing?

Jonathan Reynolds

We want a closer economic relationship with the European Union.

Mr Joshua Reynolds

Does that look like the Swiss model or the EEA model?

Jonathan Reynolds

The Prime Minister will set out those options. I am not going to pre-empt a Prime Minister’s speech, but we have shown that we have a nexus of interests that are intertwined come what may. The Prime Minister wants to start the conversation on how we work together to resolve some of those.

Charlie Maynard

The Prime Minister said that we may look to “go all the way” to rejoin, but for now the red lines exist of no single market, no customs union and no rejoin. Is that an accurate statement?

Jonathan Reynolds

We have a manifesto commitment on those. Those were his words, which you are repeating to me, on the Floor of the Commons, but he has made it very clear that, when he is looking to this 10-year plan, he wants to recognise that what the EU does will have consequences for us, and he wants to take out uncertainty by talking about what the long-term stable relationship with the EU might be. He wants to set out the options on that. That is what he is going to do as part of that. At the same time, we are working every day on our trade relationship with the EU and with the rest of the world. The UK-EU summit is a big part of that coming up.

Charlie Maynard

For now, those three red lines are bright red and standing sharp.

Jonathan Reynolds

I am not going to pre-empt the Prime Minister’s speech. You are going to have to wait a few weeks until the UK-EU summit. In terms of what we are negotiating right now, it is consistent with those red lines, yes.

Chair

We have a couple of moments when this will get clearer. One is the Prime Minister’s speech around 20 November and then there is the 10-year plan as well.

Jonathan Reynolds

I would look to the speech that he is seeking to give imminently in or around the summit.

Chair

Notwithstanding that, are there still plans afoot to open negotiations to join together with Mercosur?

Jonathan Reynolds

The obvious trade priority after the success that we have had with India, the Gulf, South Korea and Switzerland would probably be Mercosur because of the EU deal. You would not want, for instance, trade disadvantage, particularly on things such as whisky exports, as part of that. I do not have imminent news to share in relation to that. There are some other specific challenges between us, including some of the recent statements from Argentina. As ever, we are still seeking to expand the range of our trade agreements.

Chair

As a full member of CPTPP, is there action that we can take to try to accelerate the EU-CPTPP alliance?

Jonathan Reynolds

This is really the potential super trade deal. There are already formal dialogues in place between the EU and CPTPP members. Given our role, our geography and our membership of the CPTPP, we have a role to play. It is not a direct leadership role, but we are an important bridge between those two agreements.

Chair

The final thing that we just wanted to put to you, before we close, is around the Post Office Horizon victims. This is something we remain acutely concerned about. We have a total of 1,800 claims that have still not been settled. About 447 of those claims are not recognised as fully formed claims lodged with the Department. In January this year, the ambition was expressed to us that these claims would all be settled by the summer. There are still 1,800 outstanding. As you have come back into the Department, what are the instructions that you have given to your officials as to the deadline by which you want to see justice finally delivered?

Jonathan Reynolds

As you will know from our previous conversations about this, Chair, I have always made this a priority both as shadow Secretary of State, supporting the significant legislative changes that the Conservative Government did at the end in terms of getting justice for people, and, when we came in, by launching the appeal scheme and getting money out the door. We have paid out £1.7 billion and 87% of all applicants have been paid. Like you, I look very closely at the figures. I believe I have them in my pack. This has been a story. Nothing will ever compensate for the level of injustice that people have suffered. I want to say that unequivocally. From where we were pre-election to where we are now in terms of getting money out the door, we should recognise that a great deal has happened. I have looked at some of the figures for the different schemes. When I ask for information on this from the Department, where there are outstanding applications, they come from very specific circumstances where applicants themselves need more time to get that application in because of the incredibly difficult burden that they have experienced as part of this. There are a few issues where it is about people being able to evidence what they believe their loss is. If there is any specific case where this Committee or any parliamentarian for a constituent thinks that somehow these schemes, which are multifaceted and have considerable coverage, are not judging a case on its merits or giving people what they feel they need, we will take a look at that. A lot of money has gone out the door. Frankly, I would not want to put a timescale on the end of that because, in a way, I fear that could lead to a greater injustice where people do miss out on the compensation schemes. A great deal of progress has been made.

Chair

We welcome that answer, but, none the less, when we look at the HSSA scheme, for example, 573 claims have been received, 100 offers have been made and 26 total claims have been settled. Only 5% of the claims that have been filed have actually been settled. We cannot justify a situation where 1,800 claims are still to be settled, notwithstanding the progress that has been made. It is a significant achievement to have paid out £1.7 billion over the last couple of years, but we will not leave this issue until every single one of these claims is paid.

Jonathan Reynolds

I would not want you to leave it and nor would I leave it. We set up HSSA because of people’s experience of the pre-existing scheme and the sense that it had not met everybody’s needs. I recognise that HSSA is the one that perhaps has the biggest discrepancy between claims and offers made, but, looking down the group litigation order, there are a handful of claims still to settle. The same is true of the Horizon convictions redress scheme. I promise you, Chair, that I will keep all these schemes under close review in order to do that. Where cases have yet to be settled, there tend to be some very specific circumstances. It is the applicant who we are thinking of. It is the claimant who we are thinking of. I know there have been conversations about deadlines or when certain schemes should be closed. I have always said that I fear that that would operate in a way that does not give people the redress that they need.

Chair

The observation that we have often made is that supplying legal advice up front could expedite a number of these issues and alleviate a lot of the grief that applicants have gone through.

Jonathan Reynolds

I have shown a personal willingness to adjust schemes, introduce new schemes and add awards that allow people to get redress in an expedited way, if that is what they want, or go through a longer process, if they want a more significant detailed assessment of their loss. We will always consider that and we will always try to make this work as best it can, recognising that we will never be able to answer fully the incredibly horrendous experience that many people have had as a victim of this injustice.

Chair

That is an issue to which we will return. Thank you very much indeed to both of you for the evidence that you have supplied this afternoon. It has been a wide-ranging discussion. I wish you very good luck in your new role.

Jonathan Reynolds

Thank you.

Chair

We look forward to working closely with your Department and offering you and your colleagues the best of our advice on achieving your goals.