House of Commons Hansard Debates for 24 Oct 1994

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Office of Science and Technology which probably will not be won until we have a change of Government. It was, of course, a direction in development which Opposition Members had foreshadowed in our proposals for the setting up of the Office of Science and Technology, and the fulfilment of those proposals and their further development will be in the hands of my hon. Friend the Member for Kirkcaldy. After the admirable, wide-ranging and direct speech by the Chairman of the Committee, I should like to stand a little outside the vantage point taken by the Committee and consider the problem from a different point of view:

"Our dissatisfaction with Britain's industrial performance begins when we compare ourselves with our principal competitors. The quality of our manufactured goods is lower than that of Japan. Our record of innovation cannot match that of the United States. The skills of our designers are often outstripped by those of Italy. Our levels of scientific and technical education are lower than those of Germany. The job of research"--

and, one might say, of Select Committees--

"is to find out why those things are so; the job of government is to put them right.

Tonight I want to propose a rather different perspective. When I view my own personal performance, I find the outlook equally depressing. I cannot bat as well as Brian Lara. I cannot write as felicitously as Tom Stoppard. I am not as handsome as Hugh Grant. You may feel that I should spend more time in the nets, improve my writing style, and spruce up my image, and indeed I should perhaps do all these things. But the solution I have found is a rather different one. I know I cannot match Lara's cover drive, but when it comes to calculating a demand elasticity I know that I can beat Lara ninety-nine times out of a hundred. Let Lara face the bowling, while I deal with the economics.

Competitive advantage is based, not on doing what others already do well, but on doing what others cannot do as well."

Those are not my words; they are John Kay's introduction to his recent Economic and Social Research Council annual lecture on the foundations of national competitive advantage, but they put a powerful point of view. Of course, John Kay was one of the advisers to the Select Committee.

What are the things that we are good at as a nation? Surely, one thing is, or used to be, basic science. There is a perfectly legitimate case to be made for that in its own right--the hon. Member for Wantage made the point today--irrespective of its economic application. We need to understand the universe and nature in order to survive. Many scientists reasonably regard their own work and their primary duty as a contribution to that end.

Taking the point of application, however, particularly commercial application, science and research and development have an essential contribution to make and a particular application in Britain. Doing what others cannot do as well does not lead to different conclusions from those reached by the Committee and, indeed, the hon. Member for Wantage. Currently, the test criteria are the contribution to the balance of payments and the avoidance of excessive Government borrowing, given adequate levels of public services and acceptable levels of taxation. For national economic performance, it is no good excelling in the production of formula one motor cars if the consumer taste is for much more massive imports of high-tech Japanese-made consumer goods.

It is argued that manufacturing is nothing special and is a rapidly diminishing proportion of economic activity in an advanced industrial economy. As a country, perhaps we have gone post-industrial somewhat prematurely for the health of our balance of payments. We have ceded to

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foreigners the control and profits of our motor car firms while rightly, in our reduced circumstances, welcoming branch factory investment from Korean electronics companies which have followed the Japanese example rather more successfully than we have. Never mind: it may well be that in the future the proportion of the community engaged in manufacturing and the utilities will fall to less than 5 per cent. in the same way that employment in agriculture has done. If that is the scope of the application of science and technology, does that mean that the importance of science and technology will diminish in society and perhaps become an activity that can safely be left to other countries? I do not think so. The last wave of technology-generated industries included cars, trucks, planes, oil, gas, electricity, appliances, central heating, radio, television, telephony, petrochemicals and pharmaceuticals. An earlier wave included rail, steamships, coal, coke, steel, gaslight, public health and telegraphy. An earlier one still, which ushered in the industrial revolution, included canals, heat engines, coal and coke again, cast iron and textiles.

It may be that our concept of research and development at the upstream end of a linear process is too closely related to the industries of those earlier waves. The product is first invented; then it is made. What will happen in the industries of the next wave? Commonly included in the list are information technology, biotechnology, health, new materials, environmental restoration and protection. The manufacturing activities of those industries will be small in relation to their total activities, and activities which we would have called research and development in the past will become a much larger part of their activities.

We have already observed that trend in pharmaceuticals, with expenditure on research and development at well over 10 per cent. of turnover. Recently, Dr. George Poste, the head of research and development at Smith Kline Beecham, presented a scenario in which even the giant pharmaceuticals concerns would cease to exist, becoming a complex web of external alliances spread around the globe. In that web will be some of the new breed of biotech companies which have never made a dollar's profit or even a dollar in sales and where all is research and development.

Again, people say that research and development is mainly a long-term investment. In fact, however, 80 per cent. of British Telecom development expenditure is focused on the delivery of projects within the next one to two years. Development is very much a part of current operations.

As for the clearing banks, it has been estimated that smart cards carrying credit will reduce the cost of processing financial transactions to less than one tenth of the present cost; payments will cease to go through the banking system. The nature of high street banking will be transformed yet again, and there will be massive redundancies. Human resource managers in the clearing banks speak of their industry replacing the mining and steel industries as the principal job shedders of the next decade. As the effort to build up personal financial services to replace present high street banking gathers momentum, high-tech finance will move from the corporate to the personal sector with a matching increase in research and development in that service industry.

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In the process of changing the role of research and development within economic activity generally, what happens to the accounting definitions and the research and development figures reported in the accounts will be governed by other considerations. In the future, the mental and physical processes that research and development scientists and engineers go through today will become an increasing part of the overall activity in a firm and in society. Many things, from cars to drugs, will be custom developed and made, with the processes taking place largely within the computer systems used by the researcher-developer- designer.

A consequence of that increasing research intensity is the shortening of the duration of the waves of new technologies, as well as that of individual product lifetimes. It is also a major factor in the need for education and training, and for access to them to continue throughout life.

None of that is to be taken for granted. None of it will happen without a great deal of enterprise and effort. It will all have negative as well as positive aspects. But what is missing in the Government's whole approach to industry, technology, science and social policy is any sense of overall strategy, sense of direction or purpose, and the country senses that they have lost their way. One small instance of what hon. Members have already underlined is the Government's refusal to examine the case for tax incentives for research and development, as recommended by the Committee. The underlying case is simply that it is impossible to appropriate sufficient of the benefit in much research and development; much of the benefit spills over to other firms and, indeed, other countries. Therefore, firms tend to invest below the level that would be best for the competitiveness of the national economy.

The two papers--by Bronwyn Hall and by Coe and Helpman--which are quoted by the Committee are certainly not the last word, but they are a great deal better than the arguments relied on by the Government's White Paper and the recent ACOST study. The Hall paper outdates the Inland Revenue review of the literature, from which Ministers continue to quote. The Inland Revenue has internally reviewed the Hall paper, but Ministers refuse to publish the new analysis; I am not sure whether they have even seen it.

The Coe and Helpman paper also sets within a coherent framework the OECD international comparative data on the intensity of research and development, output growth, and so on, which Ministers constantly distort but which at long last the annual review of Government is beginning to spell out in honest terms.

I shall give one comparison in relation to corporation tax regimes. In the United Kingdom, a company with surplus advance corporation tax gets back in tax relief only 13 per cent. of the cost of a marginal increase in research and development expenditure. In the United States it receives 35 per cent., in Germany 30 per cent., in France 33.3 per cent., and in Japan 37.5 per cent. That lower marginal support for research and development in Britain has been a material encouragement for important British companies to build up their research effort abroad rather than in Britain. Furthermore, it is a self-perpetuating phenomenon in that as the profits earned abroad from that research increase, so surplus ACT increases and the incentives to the firm become more deeply rooted.

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We can achieve the general major shift in Britain's competitive position that is needed, with much of it contributed by improved innovation processes, and more use of a greater intensity of research and development activity through the kind of measures that have been proposed by the Committee. A strong position in the science base is more important than ever in securing access to and winning the understanding of the faster flow of new results and in providing the essential well-trained researchers. It requires a shift in the role and perception of Government, of which there is no trace in the Government's reply to the Committee's report.

8.21 pm

Mr. Nigel Jones (Cheltenham): What a pleasure it is to follow a thought-provoking speech such as the one that we have just heard from the hon. Member for Motherwell, South (Dr. Bray). I, too, welcome the hon. Member for Harrow, West (Mr. Hughes) to his new

responsibilities. When the former Science Minister sat on the Bench I had a flashback to the Standing Committee which considered the Intelligence Services Bill, but fortunately we are discussing something a little more interesting today. I declare an interest in ICL.

I thank the members of the Science and Technology Committee for the excellent report which they produced in April. Clearly, they spent a great deal of time on the report--18 months, as we heard from the Chairman of the Committee. It was time well spent. However, like other hon. Members, I find the Government's response disappointing. One of the reasons why I became a Member of Parliament was that, after spending more than 20 years in the information technology industry, I could see other countries catching up with and overtaking Britain in their standard of living. They did it by investing in the future, not in the short term but in the long term, researching and developing products that might not produce tangible benefits this year or next year but in five, 10, or 15 years or longer down the track. If Britain is to survive as a modern, industrialised nation, the people of which enjoy a high standard of living, we must invest long term, too.

Whole swathes of our industry have contracted. We have heard about some of them, including the machine tools industry, today. The science and technology report identifies the real problem. It is a problem shortly to be exposed in a book entitled "The State We're In" by the eminent journalist Will Hutton. Mr. Hutton gave the inaugural Summerfield lecture at the Cheltenham festival of literature earlier this month and identified the problem as short-termism. Other hon. Members have pointed that out.

The former Chancellor of the Duchy of Lancaster listened positively to the wishes of the science community, but I always felt that he was beating his head against a brick wall in trying to persuade his Cabinet colleagues to invest in research and development. The

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Government's response to the report confirms those fears. We have already heard about paragraph 186 of the report, which says clearly:

"We believe the time has come for a major re-examination of the case for fiscal incentives for investment in research and development, both at personal and at company level. Such a review should be conducted openly, and its conclusions should be considered by experts outside the Treasury."

In paragraph 19 of the Government's response we read:

"The Government does not, however, agree with the Committee that there is a case for general tax incentives for spending on research and development".

The Government are wrong on that point. We need to invest now in research and development of the new products that will create wealth and jobs in the future. Through the tax system we need to make it financially attractive for companies to invest in research and development, as they do in the United States.

For example, it should be more attractive for companies to invest in the future than to pay out excessive dividends to shareholders. The country, the companies and the shareholders all have an interest in long-term investment for the future instead of short-term gain. We have already heard that Japan, the United States and Germany are investing more in the future than we are. That means that they, not Britain, will create the wealth and the jobs in the last years of this century and into the next.

The banks, too, must be more flexible in supporting manufacturing industries that are investing in the future. There is a hopeful sign in the Government's response that the banks may be changing their attitude. Without properly funded research, we will spend even more time in the House in the coming years debating further cuts in social programmes, health, education, police and social services. As I have just touched on the police, is not it a disgrace that the Home Office is contemplating introducing a new formula which, at a time of record crime, would cut the budget of the chief constable in my area of Gloucestershire by 9.9 per cent?

I fear that the Government will put short-term financial issues before the long-term goal of providing for Britain an adequate base to maintain and improve our quality of life not only for our generation but for future generations. Indeed, the strategy of the Government seems to be to cut investment in key services to create enough elbow room for a cut in income tax before the next election. That is not only short-termism; it is cynical short-termism. One person's tax cut in 1996 could be that same person's job loss in 1998.

I came across an example of what is wrong a few months ago. An excellent company, Johnson Matthey, is one of the leaders in environmental technology, which is one of the growing industries. It makes catalytic converters, among other things, and it has recently carried out research into fuel cells, a subject mentioned in paragraph 346 of the Committee's report.

Johnson Matthey is now in a position to start manufacturing the technology. When I asked where it would make the new product I expected the answer to be Sonning, just outside Reading, where the research was carried out. But no. It will make the fuel cells in Belgium because the Belgian Government almost fell over themselves to attract Johnson Matthey to create Belgian jobs and exports for the Belgian economy. That is an

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instance where the Department of Trade and Industry could not keep the jobs and the wealth creation in Britain because it has such a small budget.

Many of the skills learnt in research are those of identifying and better understanding problems, and providing basic knowledge to be used in the future. A potential wealth-creating area may be identified, but will there be resources to make anything of it? One key area which is regarded by some as likely to have bigger world market potential even than information technology--the field I came from--is biotechnology. Some hon. Members may have seen Dr. Chris Evans of Chiroscience in "The Money Programme" on BBC2 some time ago. He bemoaned the fact that it was likely that the new industry would not get off the ground in Britain because research and venture capital was so difficult to obtain.

Yesterday in The Sunday Times there was a report which should interest all hon. Members. It was entitled "Doctors unlock secret of old age". It states:

"Scientists investigating the development of human cells believe they have unlocked the secret of ageing. The discovery could transform the quality of later life by enabling doctors to delay the onset of age-related illnesses . . . The research, funded partly by a British company, Biotechnology Investments, was hailed this weekend by international experts, who said that if the promise of early results was fulfilled, it could have profound impacts on the treatment of some of the biggest human killers, including cancer and heart and kidney disease."

Clearly there is still an enormous amount of research to be done in that field, but for the sake of mankind it is research that should be done and British scientists should be involved in it. The research is being carried out in California.

That is why it is so vital for the Government to realise that scientific research is not merely something that one should do. Once proven it is something that should permeate all Government Departments--to the Department of Trade and Industry and through it to health, agriculture and beyond.

The reality, as all hon. Members know, is that funding could be limitless. We can all think of projects that are worthy of investment but would far outstrip the budget of any of the parties in the House. There is a shortfall, however, which is damaging Britain's future. During our debate on science in February, I mentioned David Ko, who was a lecturer in the department of physics at Oxford university. He was worried about the effects of Government funding policy, which was leading to a reduction in the number of physics graduates. Since that time, Mr. Ko has left what I consider to be his vital job at Oxford, because of the lack of funding, and is working for a merchant bank in the City. Perhaps, as the Chairman of the Committee pointed out, he may bring a scientific bent to the workings of that bank, but he went because it pays better and he no longer faces the pressure of making do with a budget that is totally insufficient for the job that he was asked to do.

There should be a proper career structure for research scientists, with salaries and conditions that reflect their level of qualification, which will keep scientists in Britain and encourage others to become scientists. We need to value our scientists in the same way as they are valued in Germany, France, Japan and the United States. We must also match our competitors in research and development.

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In this month's edition of Laboratory News , the Government's rejection of tax breaks for research and development is greeted with some concern. The Save British Science executive secretary, Dr. John Malvie, condemned the Government's decision as "blind adherence to dogma." He said:

"The Government should at least be trying to match the assistance that other countries give to R&D. Other countries adopt pragmatic approaches and are not bound by dogma in the way this Government appears to be."

I hope that when the Minister sums up he will provide answers to the questions raised so far and especially to paragraph 19 of the Government's response to the Committee's report. I wish him well in the task of persuading his colleagues of the importance of research in this country. If, as I suspect, he and the Chancellor of the Duchy are unable to persuade the Cabinet to invest more now, that is another example of why Britain needs a fresh start under a new Government.

8.33 pm

Dr. Lynne Jones (Birmingham, Selly Oak): It is a great pity that the Select Committee report and the report of tonight's debate, in which there has been much consensus on both sides of the House, will not get the attention that they deserve. They are not such good theatre as the performances in the House when we are all at one another's throats, shouting and baying for blood. None the less, I hope that the Minister will listen to the arguments that have been presented and take those back because they are serious and important for our country.

In trying to emphasise the importance of the report I must quote a letter from one managing director to our Committee Clerk. He wrote of the report:

"I have to say that it is the most sensible and thoughtful summary of our parlous state and prescription to reverse our decline that I remember seeing. It is, in fact, quite magnificent in its measured and intelligent insight.

Let it all be done, just as your Committee has set it out, and we can at least plan to put the Great back in front of Britain." Judging by the published Government response, I think that that correspondent will be very disappointed, but perhaps the Minister can reassure us when he sums up.

The report outlined, as the correspondent said, the parlous state of our industrial and our research and development bases. The United Kingdom was the only OECD country in which total expenditure on research and development declined as a percentage of gross domestic product between 1981 and 1988. Since then, it has fallen further. Research and development data suggest that the United Kingdom has tended to underinvest in research and development costs compared with our major competitors. That problem is even more marked when defence expenditure is excluded.

According to the National Westminster bank, United Kingdom companies spend twice as much on dividends as on research and development. By contrast, the top 200 international companies spend twice as much on research and development as on dividends. The business sector in Japan spends as much as a percentage of its gross domestic product on research and development as our entire business and Government expenditure put together.

We have demonstrated how the UK tax system encourages distribution rather than retention of profits. Financial institutions such as pension funds own nearly

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60 per cent. of the equity in UK manufacturing--a total of £350 billion. Of course, they receive large tax handouts to encourage them.

Mr. Jackson, the chairman of the Celltech group, told the Committee that the

"Government should consider with some urgency what steps can be taken to re -divert the savings stream so that more private individuals can contemplate investing in young companies a part of their savings".

He said that only a very small part is needed so that we can invest in the future and at the same time people can exercise

"their right to make their own wealth and provide for the future."

The Government need to consider ways in which that change can be brought about. They need to consider ways to encourage long-term investment in British industry and to ensure that small high-tech companies get the investment that they need.

As we heard, the Committee proposed that the Treasury should consider the possibility of providing fiscal incentives for increased expenditure in research and development. We quoted various new items of research which led us to believe that, over a five-year period, there will be more than sufficient payback to justify that expenditure. When we raised the matter with the former Chancellor of the Duchy, he said:

"We have had discussions with the Treasury about this." It is clear from the Government's response that those discussions quickly terminated.

Although I welcome the initiative to consider the supply of finance and so forth, as explained in paragraph 18 of the response, how can we have an open look at the matter when the Government immediately rule out any possibility of even examining the case for tax incentives, without dealing with any of the arguments that the Committee put forward?

Last March, on the same day as the former Financial Secretary to the Treasury urged the CBI to enter into a dialogue with the Government over the problems of securing funding for British companies on terms comparable with those of our competitors, the Under-Secretary of State for Trade and Technology was answering questions in the House on interest rates for long- term loans. It is difficult to believe that they were speaking about the same issue. The Under-Secretary of State told the House that British companies had no problems in securing long-term loans at favourable rates, whereas the Financial Secretary identified difficulties in raising capital for high-tech start-ups, problems with high dividend payouts and the short- term nature of many of the loans to small and medium-sized enterprises; many of the problems highlighted in the Committee report. As that Financial Secretary to the Treasury has moved on, it seems that the open mind which seemed to be signalled at that time has now been closed tight.

The Government make great play of their success in securing inward investment into this country. To some extent, that has been recognised by the Committee report, which states:

"We have been impressed by the potential in inward investment to boost the innovatory and technical capacity of UK industry. The influence of new manufacturers from Japan in raising standards throughout the supply chain has been considerable."

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That is true, but the figures show that--far from the boast of the Government that we have secured large amounts of inward investment--more money is going out of Britain and being invested abroad than is coming into the country.

The Government try to say that their policies of deregulation and low wages have led to their "success", as they call it. However, when Committee members were in Japan, it was made clear that low wages were not an issue at all for potential investors. They were concerned about the skills of the people and the infrastructure of the areas to which they were coming. Above all, our success in attracting overseas investment has been due to our one great advantage over other European countries--we speak the international language, English. We have secured a considerable amount of inward investment, but we must address the lack of long-term investment in our own country and stop the haemorrhage of investment that goes from this country abroad. During the past five years for which figures are available, Department of Trade and Industry figures show that more than £8 billion more money has been invested overseas than has come into this country. I understand that the most recent figures are even worse, and show a deterioration. If we are to get the investment that Britain needs--yes, investment from abroad, but also the investment of our own country's wealth --and if we are to ensure that the investment that is available is invested for the future of our country, the Government should take more note of the recommendations in the Select Committee's report.

8.43 pm

Mr. Andrew Miller (Ellesmere Port and Neston): In welcoming the Minister to his new post, I point out to him that if he cares to visit his boss's constituency in Wirral, West he has to trespass on my territory and pass through Ellesmere Port and Neston. There are other ways round, but that is the natural route in. In doing so, the Minister might care to note that he would have to pass four research centres--two in the private sector and two in the public sector. The private sector organisations are involved in lubricants and electricity research and both are important centres of industrial research in our community. In the public sector are two parts of Liverpool university; the school of veterinary science and the botanical gardens at Ness, both of which are, in their own right, important centres of research.

The Minister should have a careful look at the work of some of the institutions which contribute greatly to British life, but he must also look at the needs of small and medium-sized companies which are emerging with fresh ideas, and he must look most carefully at how those businesses are supported. The hon. Member for Cheltenham (Mr. Jones) referred to Laboratory News , and quoted from the chairman of Save British Science. I hope that the Minister recognises that Save British Science has taken an objective view of the Government's action--or inaction--on the question of science. It has praised where praise is due and, on the issue of taxation, damned where damnation is due.

The Government take a two-edged position on the matter. When it is convenient, they pass the buck to the Treasury, and this is perhaps one of the examples where, in the interests of science, they should be leaning on the Treasury and persuading officials that this is the right way forward. I have just had an exchange of correspondence

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with a Minister from the Department of the Environment on the important issue of pollution caused by motor vehicle emissions, and the different fiscal policies that are applied to fuels used by motor cars. The response that I got was that it is a matter for the Treasury. It is extraordinary that matters which have a direct impact upon the environment are regarded by the Government as being simply matters for the Treasury. Surely Departments should be looking long and hard at why pressures are emerging for them to have a fresh look at their fiscal strategy.

I want to dwell on a comparison between some of the successful industries in our nation and the difficulties faced by small and emerging companies. I shall try to illustrate why I think that some of our smaller companies do not become big companies and either become victims of takeovers or disappear off the face of the earth. Companies involved in successful industries such as pharmaceuticals, aerospace and telecommunications would welcome any changes which the Government made. But historically, many of the successes in those areas--for example, the development of the System X switchgear, launch aid programmes in aerospace or developments inside the

pharmaceuticals industry with a view to marketing through the national health service--have had a huge inbuilt advantage in that they knew exactly where the marketplace was.

It is interesting that, in telecommunications, much of the private sector work--with the exception of that which is done by Martlesham--has now disappeared out of this country. There is a risk that the successor to System X will be researched outside the UK. I hope that the Government will think carefully about the implications of that for jobs, both in research and development and in manufacturing.

In contrasting those three areas of success with some of the small companies, we must ask what those small companies need. They need ideas, education, training, financial backers, and infrastructure support such as my hon. Friend the Member for Kirkcaldy (Dr. Moonie) mentioned and which is available at institutes in other countries such as the Frauhofer, Max Planck and Steinbeis institutes, and others.

If we look, section by section, at the evidence received by the Committee, one must conclude that the Government are being extremely short-sighted in simply ignoring what was, as many hon. Members have already pointed out, a simple recommendation for a major re-examination of the case for fiscal incentives for research and development conducted by people and by companies. The Committee's recommendation also suggested:

"Such a review should be conducted openly, and its conclusions considered by experts outside the Treasury."

Perhaps the Government are a little uncomfortable with the final part of the sentence, which harks back to their Treasury-driven policy.

In their response, the Government simply said that there was no case for general tax incentives. I want to highlight the support that small and medium-sized companies need to enable the entrepreneurial spirit to flourish. Such support would encourage fresh scientific thinking in the smaller companies in the manufacturing industry and enable them to grow.

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On education, most members of the Committee shared my disappointment at the weakness of the evidence that we received from the Department for Education--I found it one of the most depressing sittings of our 18-month study. There was an acute lack of understanding as to what industry needs, for example, in terms of information technology. I find it quite extraordinary that existing benefits in our education system in relation to information technology, especially with the explosion in the use of the information super-highways and the Internet, are simply being played down by the Government.

In September, I read an article in a magazine which jokingly referred to the Government's contribution to the debate on the information super- highway in terms of the Department of Transport. It implied that the cones hotline is to be made available on E-mail. So we will be able to find out which roads might be dug up by various utilities and work out whether it would be wise to drive down them. I wrote to the magazine to point out that although it was a good idea in principle it presupposed that the utility company does not sever the telephone cable as well, as that would make communications rather difficult. Given the potential benefits within government for such information technology development, it is depressing that the Government have such a narrow view on the subject. I hope that they will have a fresh look at the evidence that some of their own Departments gave to our Committee.

The Committee also took evidence about various overseas institutes, particularly in Germany, which give infrastructure support to emergent companies. I was so fascinated by the role of one, the Institute for Micro Electronics at Stuttgart, that during the following summer, while on a holiday to Germany, I took a day out, much to the chagrin of my family, to revisit that institute. I was fascinated by the links that it has established between the major players in the Stuttgart area, such as Siemens, Mercedes Benz and Bosch, and small emerging companies. To see how the those large players give active support to the concept of potential future competition is an interesting challenge not just to British industry but to the British Government. Such institutes, which receive proper support from both the federal and state Governments, have an important role in the future.

As many hon. Members have already said, we need to look at the role of the financial institutions in supporting our science base. To use a well-worn phrase, short-termism seems to be the order of the day. There is no doubt that small and medium-sized companies are the biggest sufferers from that phenomenon. We cannot simply look at the role of the banks and other financial institutions in total isolation. We must consider it in the context of infrastructural support and education and training. One must ask why the banks are not prepared to adopt a positive role to science similar to that evident in other countries. One must conclude that the banks believe that, in comparison with investing in parallel companies in other countries, they would find themselves at a disadvantage if they invested in our science base. That belief is due to our failure to give such infrastructural support to those emergent companies that are full of fresh, good ideas.

That support, unfortunately, falls down in education, because of the lack of the kind of institutes that exist in other countries and because of our failure to give any assistance through our own fiscal policies. As the hon. Member for Pudsey (Sir G. Shaw), who chaired our

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Committee so admirably, outlined in his contribution, that complex relationship of support must be taken into account. I do not believe that it is adequate for the Government simply to say that they do not agree with the Committee. If the Minister is to be the Minister for science he must understand that science is based on careful study and analysis. The Government's response--a paragraph of a mere three and a half lines--represents neither careful study nor careful analysis. The Minister's conclusions are therefore faulty. I press the Minister to think again along the lines urged by hon. Members on both sides of the House tonight.

8.57 pm

Mrs. Anne Campbell (Cambridge): I join hon. Members on both sides of the House who welcomed the new Minister to his post this evening. He may not realise it yet, but he probably has one of the most interesting posts in government, and I hope that he will enjoy it as he should. It is important that he immerse himself in science. The previous Chancellor of the Duchy of Lancaster set a good example in doing so, and earned the respect of many scientists in the process. This has been a high-quality debate, and I am pleased to be able to participate in it. I have enjoyed immensely all the contributions that have been made, and it is satisfying that so much thought and consideration has gone into the speeches this evening.

It is worth reflecting that it is 30 years since a Labour Prime Minister heralded the "white heat of the technological revolution". During the period since then, however, all political parties have come to realise the crucial importance of exploiting science and technology for industrial and commercial success. A recent White Paper on competitiveness underlined the importance of innovation and put in place a series of measures that will, I hope, encourage industry to make better use of the science and engineering base. Universities are being encouraged to recognise the value of intellectual property rights and to protect their activities appropriately. I should like to say more about that, because how intellectual property rights are treated by universities and exploited by industry is crucial to the whole process of innovation. I am concerned about whether the line which the Government are taking on intellectual property rights will necessarily lead to the industrial success which they are promoting.

When Professor Sir David Williams, vice-chancellor of Cambridge university, gave evidence to the Science and Technology Select Committee's inquiry, he said:

"It is the policy of this University not to take title itself in the intellectual property rights of its employees nor to apply for any patent in the name of the University itself."

He went on to say that the "Cambridge phenomenon" has been attributed to the university's policy on intellectual property rights.

That appears to be unusual, if not unique, among universities in the UK. Indeed, most of the institutions that gave evidence to the Science and Technology Select Committee said that they made every effort to exploit their intellectual property rights, and several universities, such as Edinburgh, quoted the fact that they were making some £3.5 million a year through contract research and the royalties from their intellectual property rights.

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The great incentive for universities, which have been starved of funds over the past few years, is for them to follow the Government's advice. Universities have done everything possible to raise income from a variety of sources, one of which must be income from industrial research, whether funded directly by outside firms or by royalties, as I have just described. The reality, however, is that, despite some excellent endeavours by industrial liaison officers and highly professional organisations such as the British Technology Group, universities earn only a tiny fraction from their intellectual property rights of the public funding that they receive in grants. One commentator put that amount at about 1 per cent., which is extremely small.

Chris Elliott, director of Smith Systems Engineering, said: "Contract research should be a low priority but has been increasingly popular with Universities because it earns money. It is dangerous because it can distort the priorities and lead to a risk of Universities changing from being centres of academic excellence to centres of industrial mediocrity."

He went on:

"The real value of research lies in the understanding that it generates, not the knowledge--and understanding is not something that can be packaged and sold under licence."

When the Science and Technology Select Committee reported on that matter, we said that it was important to take a flexible approach to intellectual property rights. Although in some areas there may be little packets of knowledge that can be sold on to industry for exploitation, the problem is that, when universities are encouraged to exploit all their IPR in that way, the understanding is contained rather than disseminated. We have industrial liaison officers who start behaving like police officers and raising barriers, rather than playing what is perhaps their proper role as salespeople and advertising executives.

Industrial liaison units in universities have problems. Many are understaffed and under-resourced. Industrial liaison officers are often undertrained and do not appreciate the nature of the commodity that they seek to exploit. Several firms have complained that universities demand too high a price for the knowledge and understanding that they have to sell.

I believe that that shows a misunderstanding of the way in which technology transfer is effected. If industry is to benefit from the understanding that is generated by university research, industry must participate throughout the process, and gain a thorough comprehension of the ideas.

One of the ways that the research councils have been trying to promote such comprehension is by means of firms adopting what they call the "heavy uncle model"--that is, providing expertise, guidance and some funding, as well as access to special facilities, if needed. I am pleased to say that I know of an excellent example in my constituency, in the form of the Rolls-Royce university technology centre, which is about to be opened in the department of material science at the university of Cambridge. That is a major collaboration; more than £1 million of funding will be provided by Rolls-Royce.

That type of input from British firms is all too rare: in the past it has been provided by Hitachi and Sony and many Japanese firms and firms from the rest of Europe and from the United States, but infrequently by British

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