Oral evidence: Science Capital Spend, HC 908

Oral evidence, 27 April 2016.

Chair

Welcome back to the Public Accounts Committee. We have concluded the main part of our business. Thank you, Mr Donnelly, for the letter that you wrote to me and Iain Wright on 21 April about the issue we touched on at the end of our previous session with you, the proposed closure of the Sheffield office. I will ask Caroline Flint to come in first, and then David Mowat.

Caroline Flint

Thanks for the letter, Mr Donnelly. It gives us an outline of the running costs at the Sheffield office and the potential savings if that office completely goes. What we do not have is something that looks at the other costs of moving people from Sheffield to London, what enhanced payments might be involved, and, looking at it the other way round, maybe even moving more people from London to Sheffield, dare I say it, to provide this function. Can you give us some more information around projected savings that works both ways? In particular, I’d like to come next to some of the costs that you’ve outlined here and what they really mean, because some of them are maybe not as clear as they might be. This is about the projected savings.

Martin Donnelly

It is about cost and effectiveness. That is what our business model is aiming to deliver, so I have to put it in that context. It is not just about the cost of individual posts, it is about how many we need in our new, more flexible model. What we don’t have yet is a view, were this decision to go ahead, on how many of the posts would permanently move to London. That obviously drives the overall cost, because it will drive the transition costs in terms of redundancies. Since we last spoke, we have opened a new voluntary exit scheme, potentially for people in Sheffield were this proposal to go ahead. There would be some transition costs there, and we could give you some figures on that.

Caroline Flint

The last time we saw you, you said—and you have just repeated it today—that this is about providing the best possible service. One would think that if you were that clear about how the service might be improved, you would be able to give us more detail about what the headcount will be, what the skills of the people you want to pull together are and why uniting them together in some form or other—whatever shape that might be—in London is the best proposition.

Martin Donnelly

Yes, and I can. First, on the inefficiency side, it is not helpful to try to do policy work on 14 sites, which is what we do at the moment. Sheffield is the second largest after London, with about 10%, but there is a range of other sites as well. That makes it more difficult for us to do an effective and flexible job. There is also the question of how we get the best benefit from our teams working together. There is quite a lot of evidence that shows that when you put people together, you get more creativity and innovation, and you can manage them better. Those things produce non-monetary outputs, but they are very important in terms of the quality of work that we do. That is what we seek to achieve, because we need to be smaller, more flexible and effective.

Caroline Flint

I appreciate that, but from what I understand from our last session, your staff in Sheffield, who I think are working particularly on apprenticeships and skills—not necessarily exclusively—are in the same building as people from the DFE who are working on policy in that area, as was confirmed to us last time, and the Skills Funding Agency. Given the point you are making about collaboration and creative discussion and thinking, surely that’s a really good place for the people who cover that function at BIS to be with those other two partners.

Martin Donnelly

There is some connectivity there, but not that much. People in Sheffield cover a very wide range of jobs, and the Skills Funding Agency is spread across the country, although it is true that we have a joint apprenticeships unit up there. We don’t manage so easily all of the connectivity with other teams across the Department. For example, we have more than 80 people working for at least some of their time on the steel crisis. We can have people backfilling, moving around and filling jobs. Inevitably, that is more difficult, despite lots of good will, if you have people more than 100 miles away.

David Mowat

“Policy” is a wide word. How many people do you have on policy in those 14 locations? What does policy mean to you?

Martin Donnelly

We’ve got about 1,600 people doing policy work as we understand it. Obviously there is a bit of a fuzzy boundary, and it plays over into delivery too. About 10% of those people are in Sheffield, and we’ve got about 40 spread over a lot of other sites.

David Mowat

I understand that, but the point that you make, which on the face of it is reasonable, is that policy should be done in one place—or certainly not in 14 places. I could kind of understand that if it were a policy group of 50 or 40, but when it’s a policy group of 1,600, I think that probably loses some of its effectiveness. I just wanted to say that. Ms Flint can carry on again now, but that’s my response to that.

Martin Donnelly

May I say that I don’t agree, on the evidence that we have? We see a lot of other companies, from Vodafone and Google to AECOM and UBS, producing very large headquarters unit, because they find that putting a lot of people together gets you more creativity.

David Mowat

I can quote companies as well, such as Accenture and others, which don’t have large headquarters units and have 350,000 employees around virtual. Again, it depends on what is called policy. I’m just making the point to you that 1,600 people doing this thing that you call policy is different from what you might describe as a tighter policy team, which clearly might have been better if it was all in one place. Saying that you have to have 1,600 people in one place is a different argument. I just wanted to make that point.

Chair

Mr Donnelly, you said, “on the evidence that we have”, and you cite a few private companies, but can you be clear what evidence you have?

Martin Donnelly

There is work going back 30 or 40 years about what I think is called the Allen curve, which shows that the frequency of communication between people drops off the further away they go.

Chair

But 30 or 40 years ago, the internet did not exist.

Martin Donnelly

That’s true, but what is interesting is that it applies to all forms of communication, so just being digitally in touch is not as effective at building teams and communicating informally as more personal contact is. There has been recent work in the Harvard Business Review—

Chair

So it’s the water cooler argument, is it? That’s the reason why you are closing the Sheffield office.

Martin Donnelly

Yes. The evidence seems to be that informal contact is actually very important for building teams and sparking ideas.

David Mowat

I repeat the point that it must depend on how many people you need for that informal contact. If it is 50, or even 100, it is different from 1,600. That is the point. The fact that 1,600 people are doing what you are defining as policy implies quite a loose definition of policy. I say again that a lot of organisations that are much bigger than BIS can rub along quite well without having to have their 1,600 most senior people in one place.

Martin Donnelly

Let me make two very brief points on that. First, we do have to work closely with Ministers, Parliament and the centre of Whitehall, and that affects our efficiency and is relevant to place. The other point is that we do need to move people around between functions more and more.

David Mowat

But on the first point you have just made, my understanding is that other permanent secretaries do not feel the need to have their top 1,600 people all in one place. I know that each Department is different, but nevertheless that’s the case. If it was a pervasive requirement, which I don’t accept anyway, you would expect other Departments to have stumbled on that eternal truth as well. It appears that they haven’t.

Martin Donnelly

It does depend on what you’re doing and your business model.

Chair

Well, I’m really interested to know what is so different at BIS, but we are going to spend only around 10 more minutes on this, so we will go back to Caroline Flint. I know that Kevin Foster wants to come in as well.

Caroline Flint

Can I ask a couple of questions to clarify the figures you have provided a bit more? The rent, rates and maintenance costing in your letter covers the whole building. How is that affected by the sharing of the building with, as I understand it, the Skills Funding Agency and DFE? Is that the total figure or just your share?

Martin Donnelly

That is our share. That is the relevant part of the costs that BIS pays for having people in Sheffield.

Caroline Flint

I think your letter says that £890,000 is the cost of rent, rates and maintenance at St Paul’s Place.

Martin Donnelly

Yes, that is my understanding.

Caroline Flint

And on the rail travel that you have identified, does that cover the cost of travel just between Sheffield and London, or does it cover travel elsewhere in the country?

Martin Donnelly

My understanding—I will double check and write to you if this is not correct—is that it is the Sheffield to London travel.

Caroline Flint

Okay. The amount you have there is quite interesting, because at around £100 per trip, Sheffield to London and London to Sheffield, that is 4,600 trips, which is more than 18 each a year for the 250 policy people in Sheffield.

Martin Donnelly

That sounds entirely plausible. Some will obviously do more than others.

Caroline Flint

In terms of the travel to London, where they are getting together to discuss policy, how much of that includes travel for training, as opposed to coming together in the policy creative hubs?

Martin Donnelly

Some training will take place in or near Sheffield; other courses will be in London. I do not have a breakdown of the figures on that.

Caroline Flint

Okay. On the other figure in your letter, the cost of staff, has the relative difficulty of recruiting in London and the possible need to raise salary levels been factored into your thoughts about where is the best place to have a service being provided, in terms of both output and costs?

Martin Donnelly

That figure is just an average of staff costs in Sheffield. Clearly there are recruitment issues in London. We have not sought to put a price on those.

Kevin Foster

I have a couple of quick questions and a quick comment to start with. In the past, there has been criticism of the fact that accommodation is reviewed only when either the roof falls in or a lease comes to an end. Were either of those the driver of this move, or was it a genuine case of wanting to look at your accommodation and save cash?

Martin Donnelly

We realised that in order to take the next step of efficiency, and if we are going to save £350 million for the taxpayer, we had to look at our entire estate. We have got 80 sites—that is down a lot over the last five years—but we are now saying, we’ve really got to rationalise that, because otherwise we cannot drive both the financial savings and the efficiency of management savings of having a single structure.

Kevin Foster

So it was a proactive decision to do it, rather than forced.

Martin Donnelly

It was proactive.

Kevin Foster

Secondly, ignoring location for the minute, is the idea of the hub to deliver more longer-term savings in terms of headcount, or to keep the current employment level stable?

Martin Donnelly

We have got to find 30% to 40% operating costs savings, and that will produce a broadly similar reduction in headcount over time. The challenge is to do that without losing effectiveness of delivery.

Chair

Mr Donnelly, you talk about not losing effectiveness, but you have some experienced staff in a part of the country which, though beautiful and interesting, is not equivalent to London in terms of cost. The Minister—I cannot remember her constituency—Anna Soubry, said to the House in response to the urgent question: “We are confident that many of the workers will choose to take new jobs down in London.” I know you are going through a redundancy process, but you also have documents, which we have had the chance to see, that show that you have made some estimates of the cost of losing staff from Sheffield. But, seriously, are you telling us that you agree with the Minister? I suppose you have to agree with the Minister, because she is the Minister, but should she be confident in that statement that many of the workers will choose to take new jobs down in London? Unless you are offering a very generous relocation package, I cannot see how that is practicably feasible.

Martin Donnelly

It is difficult for me to comment on issues—

Chair

I appreciate that you cannot comment on individual cases, but just on the general point, let us take a theoretical—how many people living in Sheffield could buy an equivalent home in London?

Martin Donnelly

We know the gap, and it is a point that you rightly raised before. There is also the fact that, over time, we will be reducing the number of policy posts in London as well—we need people to work differently and to be more skilled and more flexible, so the number of policy jobs will decline in London. That means that there will be, I think, if we go ahead with this process, a significant reduction over time in the posts that permanently transfer, but we do not have figures for that yet—they depend on the needs of individual business areas, which we are working through.

David Mowat

To summarise, it doesn’t smell right. That is not a very scientific observation, but actually your letter is not that scientific either. It doesn’t smell right. I do not believe that realising £350 million per annum—and I have no problem with that as an objective—is particularly facilitated by moving 250 people from Sheffield to London. To be fair, your letter says that, because it distinguishes between a need for £350 million in savings and being more effective in delivering ministerial priorities. It is that phrase I guess we are talking about, in a sense, but I do not believe that you have to have 1,600 people in one place, or that it will make that big a difference. I am a bit concerned that there has been implementation of a model—at the last sitting, you called it a hub and spoke model—without necessarily thinking about some derivatives of that model. You might have not 14 locations, but two or three. You do not need to be absolutist—I leave that with you. I am not sure if you know this yet, but a number of us who were interested in this as an issue, including a constituency MP for Sheffield, raised this with quite a few Members, and there will be a debate—I see that you do know this—in the House on, I think, Monday week. It is a three-hour debate on the subject, which I think has a votable motion as well, asking us to look at the cost-effectiveness and efficacy of what is being done. I am sure you will be listening to that debate with interest. It is on the eve of your BIS board meeting—

Chair

Is that right? May we confirm that the BIS board meeting is on 10 May?

Martin Donnelly

It certainly is before we will have the board—

Chair

It would be helpful if you could just write to us to confirm the date of that meeting.

David Mowat

What we would like you to do, or will be expecting you to do—those of us who will be speaking in the debate, which, judging by how it is shaping up, could be quite a lot of us—is look at or listen to that, and reflect on it, prior to your reaching a final decision.

Martin Donnelly

This has been true through the consultation: we are always open to discussing these issues, and we have tried to do so, including with the trade unions and with colleagues. These are very difficult issues, and I do not forget or underestimate the personal challenge and the problems that this sort of change programme poses. I am committed—as are all of us on the team—to working through those effectively and supportively with people involved. I would just say that last summer, we stepped back and looked at the 20,000 people that we in BIS pay for across the country, and 18,000 of those are still across the country, from Darlington to Glasgow, Bristol and so on. This is one small part of this, which is important for the people involved—

David Mowat

That is true, and we accept that, but that does not make the decision right. I would go back to the phrase I used as to whether you are being a little bit too absolutist in how you are choosing to implement what you call the hub and spoke model. You may want to think about that as well over the next couple of weeks. I say that in the spirit of advice.

Martin Donnelly

Thank you—we will. If I may, I would make the same point the other way. The model we are putting forward is a sensible one. It may not be the only model—it is isn’t the only model—but we believe it is the best sustainable model for delivering effectiveness as well as lower cost. That is why we are putting it forward. There is no other reason for doing it.

Chair

Mr Donnelly, before we went to vote we spent the last hour and a half discussing some of the Government’s industrial strategy through the science capital budget, and we talked a bit about geographical spread. Mr Mowat has just highlighted that point. In Sheffield, where there are threats to other industries, these jobs are particularly valuable, and that needs to be factored in.

Deidre Brock

I seek a bit of clarification. In her response to questions, Anna Soubry spoke of one or two higher education student finance centres, as part of the regional centres being proposed, initially in Glasgow and Darlington. I think I raised the “initially” point with you last time we spoke about this. Does that mean that the existing Student Loans Company HQ will be added to, or will it expand? Could you give us some clarification?

Martin Donnelly

I cannot go beyond what we have said about that already. The Student Loans Company will continue to perform the absolutely vital role that it plays. We want to assist with its process of becoming more digital and so on, and that will continue, but, as with all of the partner organisations, we will be having a dialogue about how they become more efficient—perhaps smaller over time—while still delivering the service that we need. We have to do this across the BIS group.

Deidre Brock

I am sure it was referred to as a centre of excellence, so how does that fit in with making it smaller in the future? I am still slightly alarmed by the “initially in Glasgow and Darlington” comment from the Minister.

Martin Donnelly

The point was to underline that we do not have any plans to change that at present. Over time we will continue to look at that, as at all of the functions that we are carrying out, to check that we are doing them in the most efficient way, in the most efficient place. As we become more digital, we would be able to expect to be able to shrink the number of people involved in some services.

Deidre Brock

Right. So the centre of excellence that was referred to is talking about improving digital services for the Glasgow HQ.

Martin Donnelly

We are looking at how we deliver that single grants platform and common technology more effectively, yes.

Chair

I am sure that Deidre will find other ways of coming back on that issue. Before you finish, with reference to the Student Loans Company, you talked about partner organisations. I would call it an arm’s length body. Is this new terminology, or are you talking about something different?

Martin Donnelly

What we are doing is saying our new model cannot use that “arm’s length” terminology. If we are going to squeeze all the efficiencies out, we have got to work as a group. That does not mean that people do not have their own management structures and so on to deliver what they have to deliver, but we are seeking to get all the efficiencies we can out of the 20,000 people who work across the BIS partners that are not trading funds and our BIS HQ, to ensure that we are delivering those services really effectively.

Chair

Has anything changed in how they are created? They are arm’s length bodies in the BIS Department, under your umbrella, so you have some oversight and Ministers are responsible. So partner organisations is just a phrase that you are using—nothing else has changed. Is that right?

Martin Donnelly

What is changing is not statutory but the way that we do things. So we are bringing some members of key partners on to our internal BIS management committees to help us take this process of change forward in headquarters, and also in the group.

Chair

You say “key partners”, but you are talking about arm’s length bodies.

Martin Donnelly

That is right.

Chair

Okay. I am a bit puzzled but the terminology there, but thank you very much for taking the time to answer us. Oral evidence: Science Capital Spend, HC 908 1 [1] Comments clarified by witness in correspondence to Committee, 9th May 2016