Q & A with FIA's Tony Purnell

Toyota and Red Bull both confirmed in public they would not lodge entries to the 2010 championship if the rules did not change, while other teams also expressed similar sentiments in private.

Yet despite the unhappiness, the budget cap remains perhaps the best solution to both cutting costs and attracting new competitors into the sport.

As talks between the teams and the FIA continued in Barcelona, AUTOSPORT spoke exclusively to the governing body's technical advisor Tony Purnell about the budget cap - why it has been chosen, why he believes it is best for the future and where the situation goes from now.

Q. Can you explain what your role has been in getting us to the point we are at with budget caps?

Tony Purnell: It has evolved. More than two years ago the FIA were very unsettled with the teams' expenditure. While F1 has tremendous value, there is always a limit on sustainable cost and it looked like we had accelerated past that limit.

We had all kinds of debates about it, and Max asked me to think about ways to really address the problem.

Formula 1 is a unique mix of sport and business. It always has been. The sport should have two elements - a competition between immensely clever engineers and immensely talented drivers. It should be that easy.

On the business side, it has to be profitable. If it is a flourishing business, people will want to come into it. We started looking at how many new teams there had been. Where were the Frank Williams's and the Ross Brawns? The FIA wanted to encourage new talent to come in to the sport.

Max asked for a paper on cost reduction and it always seemed to boil down to two ways of going forward. If it is cost reduction you want, you either hit the root cause - restrict the money supply. Or just constrain people so that the return on investment diminishes - which means technical restrictions, or what I would call process restrictions in the way you go about things. In extremis this meant going to standardisation.

The FIA pushed hard with budget capping a year ago and had a lot of support within the teams, but we ran into political difficulties. It was not on the philosophy, but on what was the right number. It was either too high for half the grid, or too low for half the grid.

Then FOTA came along and we were involved in discussion with them. They were very good people, very good engineers, but you could see that their heart was not really in restricting themselves but it was what they had been told to do.

Then Max asked, what is the DNA of F1? What is F1 all about? It should be to encourage technical competition, to encourage innovation like KERS. Now, not everybody has made it to the grid with KERS, but that was part of the technical challenge. There are some really, really good systems out there, but is it wrong that the technical challenge was so great that some people haven't quite made it? I would say absolutely not. Is it wrong that we have got this wide array of solutions to the opportunity? No, it's brilliant.

But the thing that has really struck us is that since we announced KERS we have seen the development of flourishing companies like Flybrid Systems, who didn't even make it onto the grid. Why? Because of the catalyst of F1.

We've got BMW, Mercedes and Magneti Marelli, the people who have really pushed KERS, all saying that this has improved the knowledge of a hugely relevant automotive technology. And what is more, that knowledge is going into production exercises - they are very enthusiastic. We also have Williams who have backed massively clever innovation with a business attracting real interest - and they haven't made it to the grid either. KERS has confirmed our thinking that innovation is what F1 is all about.

It is certainly what many of us grew up loving about F1. There was always that feeling that that exciting new technology was going to come in future.

So, faced with these two philosophies we decided not to go down the standardisation route. Then we looked at the budget cap again. It produces a really great competition because it is all about cleverness, the real DNA of F1. It also enables us to allow for wider scope in the technical regulations, so we can throw in these new technical challenges like KERS.

It also frees us up to focus the sport on sustainability. The current financial crisis has produced an undercurrent that if we don't change F1 to present a public image of technical relevance and economic and environmental sustainability then we are going to get into difficulties.

The FIA feels that we have to introduce a new F1 car that faces the challenges of the decade to come. And yet, how do we do that when the automotive industry is facing a meltdown? Certainly when you talk to someone in the automotive sector, they say don't use the word downturn. It is an outright depression.

In the F1 of the past decade, introducing a new powertrain meant trooping up into a manufacturer's boardroom and saying: "A fraction off a billion dollars please!" I don't think anyone in this pitlane, brave as they are, has the nerve to do that today.

If we can create an acceptance of a financially controlled environment, then all these things become possible. We can change F1 and evolve it, and F1 is about change.

We can make F1 so that entrepreneurs can come in and, if they do a good job, they can become established. I think we can change the image of F1 away from something that has served it very well for the past decade but is now out of tune with the coming years. With all of these things on the plus - many agree that is where we want to get to.

Even chatting to the people who are unsure, they like the vision. They say: what you are trying to do, we don't want to push back against that. The perceived difficulty is all about the transition.

Q. And you think it vital that something is done immediately, to pre-empt financial problems that lay ahead because of a crisis that may be bigger than some people realise?

TP: I was recently told by one of the leading sponsorship agencies - Don't listen to any of the arguments that lowering the costs will chase sponsors away. Sponsorship is about value. F1 offers tremendous value and will continue to do so.

The other thing is that we have a group of potential sponsors who are very attracted to F1, but don't like its profligacy.

To make change needs courage, resolve and leadership. And it is where a committee often runs into trouble. Everybody wants what is good for them, but you need someone to see beyond that and cut through the self interest and say this is what we need to do. That is exactly what Max is doing.

Q. FOTA made a proposal last year to the FIA of a budget cap, but at a different level to the £40 million. So it appears they are in favour of the concept, but it's the level it is set at that is the complication. Can you explain why you have settled on the £40 million figure?

TP: We started off by doing an investigation into what is the minimum cost to put a car on the grid under the present rules.

Then we went a little bit leftfield and looked at Le Mans cars, A1GP, GP2 and that sort of thing. How much did it cost as a development programme? The absolute lowest figure was £30 million.

We announced that figure and we got an immediate response from lots of prospective people - some of whom we know are very serious.

Then there was a lot of lobbying, as always goes on, and then there was also this feeling that we had worked out this minimum figure, but we wanted to allow the technology and the innovation side to flourish. So we needed a budget above that minimum, and that is, in my way of thinking, why there is an extra £10 million. So there is the base level, plus £10 million to improve the car and get it into the area of engineering competition.

Q. But do you not concede that it will be difficult for a big manufacturer team to go from a budget of £150 million this year to £40 million per annum in just six months, whereas if the figure goes much higher new teams will not be interested in coming in?

TP: Yes. The thing is a tremendous balancing act. We want to attract new teams and my feeling is that if we pushed it much more, the number of new teams, which has already thinned going from £30 million to £40 million, would just disappear. So, the objective of attracting new teams, we cannot lose sight of it.

On the other hand, there are the manufacturers needing to make big cuts. Well, the FIA is the regulator and we have to see the bigger picture. Ask anyone to study the ownership of F1 teams at the moment, and the main automotive companies, and they are facing a deep crisis. And amid that economic environment, if you are right at the top of the company, you think we have got to change the spend and cost profile. What is the most high profile spend? F1.

It is a time for difficult decisions to be taken. Sitting dazzled in the headlights won't work. So, for the big teams, they face a massive challenge and whatever you do is a risk. But doing nothing is an unacceptable risk.

Q. What about the risk of a two-tier championship, and the claims that it will destroy F1?

TP: It is all about transition. I think there are certainly many members of the media and many people in the paddock who say, where you want to get to is really admirable. But how do you get from A to B? The option route is a means to do it. In the medium and long term we expect things to converge. In the meantime, certainly if all the FOTA teams think that two tiers is wrong, then we absolutely invite them to go one way - problem solved.

Q. You had discussions with some teams last weekend. What has the feedback been like?

TP: The major issue seems to be about transition, and could we soften it over three years. Transition is always difficult. We've laid out a route to do it, and those are the regulations. We think what we are trying to do is the right way and the FIA can't dilute its goals. Either we do this and we show courage and resolve, or we allow ourselves to get compromised until things get diluted.

Q. Do you believe that the problems the manufacturer teams have in dealing with the transition can be sorted out in the next three weeks?

TP: We are optimistic. If the attitude is right, then anything can be done.

Q. So you see no problem in the differences between the teams' resistance to a two-tier championship, and your push to get them all in the budget cap, getting settled?

TP: I'm optimistic. Whenever change has been required the teams have cried Armageddon: Parc Ferme, engine freeze, V10s to V8, KERS... On each occasion there were those who claimed that F1 would fall apart. These experiences tend to make the FIA more resilient to all the hysteria. People don't like change.

Q. So the crux isn't where the budget cap is as such, it is simply how we get there and dealing with the transition?

TP: It's about how we make the transition as acceptable as it can be for everyone. We've created a choice.