Research Establishments (Hansard, 14 April 1994)

§ Mr. Heseltine

I announced on 4 May last year that I had commenced a review of the options for the future of my Department's laboratories. This review, carried out with the aid of KPMG Peat Marwick management consultants, is now complete, and I am announcing my intentions for the future of the three major establishments: the National Engineering Laboratory—NEL—the Laboratory of the Government Chemist—LGC—arid the National Physical Laboratory—NPL. During the process of finalising these proposals, my Department has kept in close touch with the team undertaking the current multi-departmental efficiency scrutiny of public sector research establishments.

I have today placed in the Libraries of both Houses the summary report I have received from the consultants KPMG Peat Marwick. This summary necessarily excludes information the publication of which might be prejudicial to the taxpayer's interest in the negotiations surrounding these privatisations.

The DTI's laboratories are an important national resource and each of them plays a significant role in ensuring the competitiveness of British industry, and in meeting the needs of Government Departments. In the past few years they have been established as executive agencies within my Department under the "next steps" initiative. This has involved financing themselves principally from fee income, earned on contracts placed by arm's length customers. Their customers are in the private sector, in other Government Departments and in my own Department. Under this management regime the laboratories have become more focused in their work, more sensitive to their customers' requirements, and more cost-efficient. They have a good record of meeting the targets Ministers have set them, and of improving their performance from year to year.

In the light of reductions in their prospective work load, these laboratories face the need to reduce and restructure their operations and to seek new business and new customers. At the same time, the progress they have made as executive agencies, although it has been impressive, has also revealed more sharply the limitations inherent in operating on a commercial basis within a Government Department. In their ability both to raise and use capital and to develop and exploit the widest possible markets for their services they do not have the flexibilities they would possess in the private sector. All of the laboratories are now facing competition, and are experiencing declining work loads reflecting both that competition and the Government's changing research priorities. In response, the laboratories have improved their efficiency, but now need more flexibility to continue doing so.

My review has convinced me that each of these laboratories will respond best to these challenges within the private sector, and that once they are set free from the constraints of operating within Government, they will be better able both to serve their existing customers and to market their services to new customers, above all in industry. These laboratories all have a unique asset In the expertise of their staff, which is respected internationally. 252W In the private sector there will be more scope for that expertise to be applied to the advantage of British industry. The laboratories will remain first class institutions.

The NEL's role is that of a technology services enterprise serving customers in the private and public sectors. A decision has already been announced that it will be prepared for privatisation once it has established its commercial viability. For some years now the NEL's aim has been to reach this point in 1994–95, so that the process of privatisation can be set in hand during 1995. It has made major progress towards these targets, and my review has now confirmed them in spite of major changes in its programme of activities, reflecting changing priorities within my Department's research and technology spending. These changes will make substantial restructuring necessary, following which I intend to seek a trade purchaser of the NEL during the summer of 1995.

The LGC's role is to provide chemical analysis and measurement services to several Government Departments and other bodies. A key asset is its independence and its reputation for impartiality. I have decided to pursue the recommendation of my consultants that it should be established as an independent non-profit-distributing company in the private sector. Preparations for this will be put in hand immediately, including a major restructuring programme, and I hope to complete the process by the end of 1995–96. However my mind is not closed to the possibility of a trade sale of the LGC, if a suitable buyer comes forward who can demonstrate the requisite independence.

The NPL's main task is to develop and disseminate national measurement standards. Its dominant customer is my Department's national measurement system policy unit. Although this position will remain, the laboratory needs to continue restructuring to adapt itself to a reduced budget for work of this kind. Although the efficiency of the NPL has continued to increase steadily as an executive agency, it now needs to achieve further significant restructuring. I have come to the conclusion that this will be more effectively achieved if its management is contracted to the private sector. I thus intend to invite proposals for a management contractor during 1995. Commercial progress under the management contractors will be carefully reviewed, and might in due course result in the NPL becoming ready to move into private sector ownership.

I shall separately be considering the future of the National Measurement Accreditation Service, part of the NPL, which the consultants felt should be viable on its own and could more appropriately operate independently of the NPL.

Although all these laboratories are finding an increasing proportion of their business from the private sector, my review has made it clear that their success under private sector ownership or management will depend on their ability to bid on fair and equal terms for business from customers in my own and other Government Departments. Those taking on the responsibility of their ownership and management will naturally need to be assured that these opportunities will be available. It is the clear intention of the Government that they will be. The White Paper "Realising our Potential" (CM2250) sets out our commitment that competitive tendering procedures must become the normal method of placing work.

These decisions represent major changes for all three establishments and their staff. The changes will enable the 253W NEL, the NPL and the LGC to take better advantage of new opportunities and to forge new and successful futures for themselves. The planning of this process is a complex task requiring thorough co-ordination. To assist in pushing it through with all vigour I have appointed the PA Consulting Group to act as project managers.

The consultants also considered future options for the National Weights and Measures Laboratory—NWML. They recommended no major change but I am looking at possibilities which the Deregulation and Contracting Out Bill will offer for contracting out some of the NWML's services. I will be making a further announcement in due course.