Liberal Democrat Proposals for the Department of Trade and Industry

Written by Malcolm Bruce MP and published in Whitehall and Westminster Magazine on Mon 3rd Jan 2005

The Liberal Democrats are instinctively a pro-business party. We believe that business is best placed to deliver prosperity when it is freed from excessive regulation, unhelpful state interference, and the distorting effects of government subsidies. More than two decades after it was established it is clear that the role for which the Department of Trade and Industry was created doesn't exist any more.

The UK economy has changed radically in the last twenty years. From the high water mark of state intervention in the 1970s we have seen large parts of the industrial and national infrastructure transferred to private ownership. Manufacturing industry continues to decline, while the service sector has expanded and employment growth has shifted to small and medium sized enterprises. International trade has been liberalised and the speed at which markets and investment patterns now changes requires economies that are flexible and adaptable.

The Department of Trade and Industry came into being in 1970, effectively running the nationalised conglomerate of that era. Its predecessors, the Board of Trade and the Ministry of Technology, brought with them a swathe of loosely connected responsibilities including labour relations, patents, promotion of science and technology and the management of Britain's energy needs.

However it now seems clear to us that Britain no longer needs a huge government department devoted to trade and industry, and that we should abolish it. The many useful functions that it houses will be dispersed to more appropriate departments with better defined responsibilities. In addition we consider the subsidy programmes which it oversees to be a wasteful use of money that we could deploy in better ways.

Our proposals for the DTI have been broadly well received. We have been particularly concerned to address the needs of smaller businesses, of which only a minority actually use the DTI's Small Business Service, and go through the complex application procedures for grants or subsidised consultancy. Businesses like our plans to lift the burden of compliance with excessive regulation, and give them reliefs on business rates. These are the measures that will increase productivity and dynamism in the economy, not centralised bureaucracy and constant interventions.

Some business leaders have expressed concerns about how their interests would be represented in a government without a DTI. We understand these, and will create a Minister for Business (combined with the role of Chief Secretary to the Treasury) as the voice of business in the Cabinet. His team will develop the corporate legislative framework and advance our agenda at the WTO and other multilateral trade forums.

This will remove an inherent conflict within the DTI: its dual role as promoter of industry and regulator on behalf of the consumer. We want to further focus and strengthen consumer protection by gathering together the Office of Fair Trading, Food Standards Agency, Competition Commission and other regulatory bodies into a small Department of Consumer Affairs.

In response to complaints about the administrative burden of excessive regulation we will create a Deregulation Unit. This arms-length agency will provide an independent impact assessment to ministers of all proposed regulation. A sunset clause will also be required for all new regulations affecting business.

Energy issues such as the management of our nuclear power legacy and the development of renewables will go to a new Department of Environment, Energy and Transport. Employment relations issues and ACAS will move to the Department for Work and Pensions. Equal opportunity issues will be transferred to the Home Office.

Around a quarter of the research and development done in the UK is publicly funded. It is vital this pattern continues, particularly in 'blue skies' research. Funding for science is currently split between the DTI and the Department for Education and Skills. We will consolidate this funding within our new Department for Education and Science.

The considerable sums being spent on business subsidies can be used in better ways. There is unfairness and inefficiency in a grant system only accessed by the few who invest time and effort negotiating it, or who employ consultants well-versed in the complexities of harvesting government funding. We see Regional Selective Assistance (now known as Selective Finance for Investment in England, or SFI) as an expensive job creation scheme, with much of the money going to foreign companies to start ventures which disrupt existing businesses by simply taking their trade.

We don't plan to scrap all nationwide schemes. With reforms to the way it operates, the Small Firms Loan Guarantee Scheme can continue to usefully fill a financing gap for borrowers without collateral to pledge. It has a very high default rate however and should become self-financing. Likewise the Manufacturers Advisory Service has delivered a worthwhile return on investment, in a beleaguered sector of the economy, and we would retain it.

More generally, we support the delivery of tailored community investment programmes and targeted business support by the Regional Development Agencies. These will be strengthened and made more accountable to local authorities, with an enhanced role for local chambers of commerce. By devolving decision making to this level we expect to see initiatives that better respond to local needs and conditions.

The Export Credit Guarantee Department underwent a successful part privatisation in 1991 of its short-term business, and debate continues around the strategic value of this agency to the UK export sector and the level of government subsidy it needs to offer. We do not favour the current network of state-run export credit agencies, subsidising generally large companies in politically sensitive areas such as defence. We will press for reform to this system, and for the ECGD to operate on both a more commercial and transparent basis.

UK Trade and Investment has an important role to play helping British companies export successfully, but we feel this best comes from its network of trade specialists around the world working with consulates and embassies to provide specific advice on local business and political issues. Businesses do not want yet more subsidised consultancy, especially accompanied by form-filling and bureaucracy. They want a more commercial service that is tailored to their needs, and in some cases it may be appropriate for the companies receiving assistance to contribute towards the cost of providing it. The RDAs would be able to help companies access this service.

The Conservative Party have announced plans for deep cuts to the DTI in the James Report, asking it to do much the same job but with far fewer staff or resources. We feel our proposal has a far clearer underlying logic. Liberal Democrats want to offer a constructive and positive solution to the challenges the UK economy faces in the 21st century.