The DTI’s stated aim is to increase productivity. But does its confused identity, ineffective schemes and growing
desire to regulate actually inhibit progress?
Stephen Overell investigates
Patricia Hewitt believes the Department of Trade and Industry should be run
"like a first rate business" and, like all first-rate – or for that
matter third-rate – businesses, it feels the need to write down what it is
there for. The mission of the DTI is: "To increase competitiveness and
scientific excellence in order to generate higher levels of sustainable growth
and productivity in a modern economy."
Whenever employers learn of this aim, the reaction tends to be surprise,
bordering on disbelief. Employers want growth, yet they see the department
raining down upon them a biblical plague of vengeful legislation and red tape,
assisting the machinations of the European Commission to render the UK as
bureaucratic, inflexible and dirigiste as possible.
Traditionally, the purpose of the DTI may well have been business support.
But since 1995, when the Employment Department was scrapped and its work shared
out between the then Department for Education and Employment and the DTI, it
has been forced to embrace what could be seen as the alien agenda of employment
relations. And it has embraced it with what employers regard as unhealthy zeal.
The Better Regulation Task Group notes that in 1998 and 1999 there were no
fewer than 11 major pieces of employment legislation – the same number as in
the 20 years between 1976 and 1996.
A significant majority of HR directors believe that complex employment law
is hindering productivity, according to a July 2002 report by the Chartered
Institute for Personnel and Development (CIPD). By the Government’s own
admission, the cost of regulation introduced since 1997 now comes to £5bn a
year. Yet ministers do not perceive the conflict that employers see all too
readily – that a department whose purpose is business support is also
responsible for the legislation that businesses allege is holding back growth.
Arguably, resting in the DTI are all the Labour Party’s ambiguous feelings
towards business as a whole. Trade and industry is one of the least glamorous
patches in Whitehall and Hewitt is the fourth secretary of state since 1997 –
her the predecessors being Peter Mandelson, Margaret Beckett and Stephen Byers.
Yet the DTI sponsors policies that are dear to the hearts of core Labour
voters, such as the minimum wage and trade union recognition – the reason,
perhaps, why they have not parted company with the New Labour project in even
Mike Emmott, adviser to the CIPD and a former official at the DTI, says:
"It does try to be a business lobby with the Government, but it gets
pulled all ways by the need to adjust to the political requirements of the
moment. Its heart is in business support, but it is unable to deliver
consistently, so it gets kicked by its friends for being supine."
The Jekyll & Hyde nature of the DTI is a point that has been put to
Hewitt, and she has developed a lithe, diplomatic, Third Way line – not a
million miles from the kind favoured by HR professionals.
"I do not see a conflict between the department’s role in employment
relations and the department’s role on productivity and competitiveness,"
she told the House of Commons Trade and Industry Committee. "I would
define the purpose of the DTI as being to work with business and employees and
consumers to help drive up productivity and competitiveness." She says
good levels of employment protection, the right regulatory framework and the
promotion of best practice "help to create more high performance
workplaces… because there is good evidence that the most productive
businesses are the ones that have an effective partnership with their
The DTI, in its Productivity and Competitiveness Indicators mentions five
‘drivers’ of productivity: investment, innovation, skills, enterprise and
competition. No specific mention of employment rights, here. However, Hewitt’s
argument – that "good quality" employment contributes to productivity
– is partially accepted by even the DTI’s most viperous critic, the Institute
of Directors (IoD), although it does complain the Government takes it too far.
In a report last September the IoD criticised the DTI for its incoherent
strategy, political instability and for an over-ambitious list of targets.
However, Richard Wilson, the IoD’s business policy executive, denies that the
logic of its charge sheet is that employment should have a department of its
own. "It is better to keep employment relations within the DTI rather than
have departments working against each other," he says.
The TUC has consistently called for the re-creation of an employment department
because the quality of regulation has suffered, says its employment policy
officer Sarah Veale. This is supported by the Better Regulation Taskforce’s
criticisms of the DTI last year. It called for more research into the impact of
employment legislation on organisations, and suggested that the constant drip
of new regulations makes it harder for employers to deal with.
Veale also believes the DTI’s employment relations directorate feels
over-stretched. Out of a budget of £5.1bn in 2003-2004, employment relations
has just £19m for its programmes, the bulk going on funding enforcement of the
minimum wage, carried out by the Inland Revenue.
Employment as a policy area has been "Balkanised", says Veale. The
Health and Safety Executive and unemployment come under the Department of Work
and Pensions; the New Deal, Sector Skills Councils and vocational learning come
under the Department for Education and Skills; while tribunals, unions, Acas
and employment law rest with the DTI. Requests to unite them have fallen on
Like other government departments, the DTI has its list of targets, chief of
which is "to demonstrate progress by 2006 on the Government’s long-term
objective of raising the rate of UK productivity growth over the economic
cycle, improving competitiveness and narrowing the productivity gap with the
US, France and Germany". Productivity is measured by output per worker
(dividing GDP by total employment in the Labour Force Survey) and output per
hour. It is a grand aim, but the accompanying technical notes do not specify
how the DTI is to be measured. If productivity grows, the DTI’s ‘progress’ has
been proved, apparently. QED.
Whenever HR professionals are asked to demonstrate how they contribute to an
organisation’s bottom line, it does them no good to point to the overall
performance figures, and say: "There you go, HR is useful". They must
show their part in it.
But then maybe this is just as well. The direct levers available to the DTI
are very few. The usual panacea for flat productivity, touted in White Paper
after White Paper, is investment in skills. Yet the skills agenda lies outside
its remit. Instead, the DTI hopes to ginger up the nation’s output by setting
the framework for regulation, and by encouraging enterprise, innovation, and
investment as well as running the Small Business Service (overseeing Business
Links and administering 183 different grant schemes with a budget of £254m).
The signs of activity are everywhere: making start-ups easier, the research and
development tax credit, the £1.25bn invested in commercialising science and
Yet the task seems to dwarf the means. Investment is at a three-decade low,
patenting (a measure of innovation) is weak by international standards, and
over-centralisation means regions and cities have little power to stimulate
development. Although 175,500 new businesses registered last year, 162,000
deregistered. Moreover few of the intended beneficiaries have a kind word for
The Federation of Small Businesses says its members are "immensely
confused" by the plethora of schemes and complains of ‘initiativitis’. It
would like to see all business support given to the Regional Development
Agencies and Business Links, rather than be controlled centrally.
Criticism of low-value, low-impact schemes and a lack of strategic direction
were the principal complaints in a review of the DTI’s services completed in
November 2001. Its response has been a new strategy board, strategy unit,
productivity strategy, core skills group and a pledge to be ‘more
Recent years have also seen signs the department is edging towards deeper
interest in people management as a source of growth for the wider economy – it
runs funds for employee-employer partnerships and good practice on work-life
balance, and in 2000 set up the Council for Excellence in Management and
Leadership to promote the links between management and performance. Chris
Parsons, a consultant with Penna, believes Hewitt’s recent criticism of
management skills reflects this attempt to look at new ways of tackling
However, Michael Porter’s report on productivity (Personnel Today, 21
January 2003) disputes the belief that management skill levels are a
significant problem – although he does think middle and junior managers require
development. Instead, it indicates further background roles for the DTI and
other government departments to allow the UK "to climb the next rung of
the ladder". The report calls for investment in infrastructure, skills and
science, decentralisation, more use of industrial clusters, encouraging new
management techniques and collaborative effort.
"There is a tendency to think the role of government is to make markets
work efficiently," Porter says. "But there are certain assets that
require public investment to move to a high value, innovation-driven
economy." He also disputes that regulation is holding back productivity.
On the contrary, he argues the level of regulation is "strikingly
low", and suggests "high regulatory standards promote
His description of the UK as "one of the great success stories"
will surely gladden hearts at a much sniped-at department. Yet whether the DTI
is really able to do much towards its central aim of increasing productivity
remains dubious. And if not, what is it for?
DTI regulatory timeline…
Employment department abolished
Margaret Beckett appointed President of the Board of Trade. Policy
priority: ‘fairness at work’
Peter Mandelson appointed as Secretary of State. Policy priority: ‘the knowledge economy’
Employment Rights (dispute resolution) Act
Working Time Regulations
National Minimum Wage
Data Protection Act
Public Interest Disclosure Act
Stephen Byers appointed Secretary of State: policy priority: ‘rip off Britain’
Employment Relations Act
Tax Credits Act
Collective Redundancies and Transfer of Undertakings Regulations
Transnational Information and Consultation of Employees Regulations
Maternity and Parental leave Regulations
Small Business Service set up
Part-time Workers (prevention of less favourable treatment) regulations
Partnership Fund launched
Work-life Balance fund launched
Centre for Excellence in Management and Leadership
Patricia Hewitt appointed Secretary of State. Policy priority:
Small Business Council launched
National Minimum wage increased to £4.20 an hour
Employment Bill receives Royal Assent