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Mr. Butterfill: The hon. Gentleman should consider other comparisons with the EU, such as unemployment levels and the rate of growth in the economy. In those matters, the UK appears in a rather better light.
Mr. Chidgey: I do not disagree with that comment for one moment. However, as I develop my speech, I shall
illustrate my concern that we shall not be able to achieve growth in our economy unless we grasp the key issue that we must be more innovative and more enterprising. It is important to make comparisons with other nations with which we compete, not just in Europe but elsewhere. I shall come to that as I develop my point.
The survey showed that the key indicator of impact on innovation was the relative share of turnover in new or improved products. In that respect, the UK could manage only eighth place out of 12. That shows the scale of the problem. We in the United Kingdom are chugging along behind most of the European Union in innovation, but even the best in the EU lag far behind Japan. For example, for every 1 million ecu spent on research and development in the EU, Japan files twice as many patents as European industry. That is a measure of the lack of development of innovation in our economy and that of the EU, compared to our major competitors in the world marketplace.
Since 1985, the level of production in Europe has risen by only 10 per cent., whereas in Japan it has risen by 80 per cent. That is a severe handicap to business and employment, especially to the high-tech businesses, as the links between innovation, competitiveness and employment are becoming ever closer.
Finally, the survey confirmed that the companies that invested most in research were the ones that created the most jobs over the past 20 years. There is a pressing need, therefore, to step up innovation in this country.
From research, it is clear that we need to take action in three areas. The first is the promotion of a genuine innovation culture. The second is the establishment of legal, regulatory and financial frameworks that support innovation. The Government have been making noises this morning about how they hope to tackle regulation and set up a Small Business Service. I hope that that will go further than helping small business to understand and unravel the new legislation on the working families tax credit which, as the Minister for Small Firms, Trade and Industry knows, has not exactly been received with rapt enthusiasm in all corners of the House. We need a little more than that if we are to make regulations that help rather than hinder commerce. The third area that the Government must look to is how to gear research more to innovation, products and outcomes.
I shall deal briefly with the UK's business scenario and investment in research and development. The "Today" programme this morning quoted from a report from the Department of Trade and Industry that highlights the problem. If I understood what was being said at that early hour, it was reported that the UK's competitors were investing some 5 per cent. of GDP in research and development, whereas we invest only 2 per cent. of GDP in R and D. Worldwide, a quarter of all investment in research and development is in information technology, but in Britain very little is invested in IT, because we have very few firms that are still active in that sector. That is a cause for major concern.
Statistics provided by the Office for National Statistics "Business Monitor" for 1996 showed that, relatively speaking, only a small proportion of total investment in research and development is made by our smaller firms. That is extremely worrying. For example, 9 per cent. of investment in R and D is made by companies with fewer than 100 employees. For firms with a work force of 1,000 to 5,000, the level of investment is 38 per cent.
That is an interesting difference. We clearly need to take action to nurture small and medium-sized enterprises so that they spend more on research and development. I recognise that the Government's proposals for tax credits will help, but we must do far more.
To Britain's cost, the vital role of science and engineering has been neglected. Within limits, levels of research and development expenditure remain the best overall measure of innovative activity. Figures from the Organisation for Economic Co-operation and Development show that over the past 20 years, at a time when most advanced industrial countries have been increasing their commitment to R and D, in Britain investment has been falling.
The fall in investment is widely based. Government support for academic research in science and engineering fell from 0.4 per cent. to 0.3 per cent. of GDP. The Government's own spending on research and development has been cut, and many departmental research facilities have been closed. Even more damaging, spending on innovation--the take-up and development of new technologies in industry--has been reduced. The DTI's innovation budget has fallen by more than three quarters, from £280 million in the mid-1980s to £66 million at 1996-97 prices.
The biggest failure to invest in research and development lies with industry. Whereas in most industrialised countries there has been an increasing commitment from industry to invest in R and D, the contribution made by British industry has fallen to 0.9 per cent. of GDP, lower than at any time since 1975.
Above all, there has been no clear-cut political strategy for investment in R and D over the years. The previous Administration's attempt in 1992 to provide a strategy through the appointment of a Cabinet Minister responsible for an Office of Science and Technology withered on the vine, apparently amid departmental wrangles. That office has been incorporated into the DTI. Despite the present Government's rhetoric about competitiveness and innovation, we are still not clear where the responsibilities lie and what the strategy is.
Mr. Butterfill:
Will the hon. Gentleman give way?
Mr. Chidgey:
Just one more time.
Mr. Butterfill:
The hon. Gentleman has been extremely generous. Does he agree that, given the Government's rhetoric and their claim to be increasing research funding, it is extraordinary that last year, grants to the research councils were cut massively, to the point where many universities could not take on students taking masters degrees or PhDs in research-based subjects because the research councils' budgets had been cut so savagely?
Mr. Chidgey:
I cannot confirm the hon. Gentleman's suggestion that student places have been cut, but I take issue with the Government on the way in which science and research funding has been cut across the board.
Although I welcome the commitment in the comprehensive spending review for an additional £1.4 billion over three years to be spent on research and development in the science base, that sum is not as great as it may seem. The £600 million to be spent on capital
projects, of which half is to come from the Wellcome Trust, will begin to make good part of the backlog in re-equipping our universities, but we should not rely on the largesse of the private sector to make good what should be primarily a Government responsibility. Claims that the new money will provide £200 million extra each year for the science budget are wildly exaggerated. Once we adduce the allowance for inflation for the whole budget--approximately £60 million a year--we are left with £140 million of new money in the kitty.
Even after that injection of new money, United Kingdom science is still poorly funded compared with that of our competitors. Moreover, a good part of the money is directed to such schemes as the university challenge scheme, which is aimed not at pure research, but at encouraging industry and university links and other initiatives. I welcome those schemes, which are all good, and I am not criticising them, but I am worried about the fragmentation of effort, and that the process will do little to tackle the fundamental problem of industry's poor research and development performance. I am worried that the Government have yet to show my hon. Friends that they have a perceptive, pragmatic and progressive strategy for science.
I listened to the Minister of State with great interest. Much of what he said is welcome, as his words of enthusiasm often are, but I am still concerned about how far that will take us down the road that we need to take if we are to improve our competitiveness and enterprise. I refer Ministers to the statement made by the Secretary of State in the House on 10 March, in which he set out a raft of measures that would be introduced by the Government. Although I listened carefully to the Minister of State, I had difficulty in discovering whether the list outlined by the Secretary of State was being ticked off three months later--perhaps because of the Minister's accent, of which he is so proud.
Mr. Bercow:
Is not part of the problem that, although the Minister of State--sadly, he is not in his place--stuck loyally to the Government line, he displayed not a smidgen of enthusiasm for the cause of deregulation? Does that not differentiate him, at least rhetorically, from the Secretary of State?
Mr. Chidgey:
It is not for me to pass judgment on that analysis. I recall that the Minister of State showed great enthusiasm for deregulation, although I do not recall his being too specific about what he will do about it.
I do not want to delay the House for too long, although this is an interesting debate and a welcome opportunity to look at the real issues. For the benefit of the Minister, and if he will tolerate it, I shall outline a checklist. I may have missed something in passing--and if I have, I apologise--but we want to know how far the Government have got with their programme.
We were promised a strategy to encourage
Moving down my list, we were promised a study into international price comparisons, a framework for utility regulation, a modernised merger regime and a consumer strategy, to be published before the summer. We have recently had the longest day of the year, so we can declare that summer is truly with us. The Secretary of State's statement was long on what the Government would do, but we are still rather short of things that have been done. The House deserves a little more information and a progress report on how well the Government are doing.
The Small Business Service is a good idea and I welcome the Government's proposals, but I want more detail--something I can get my teeth into. We need to follow the American model and establish a national network of genuine one-stop shops. An alarming situation was revealed in the community innovation survey, which took in 5,000 firms of different sizes throughout the country. It asked about their involvement--[Interruption.] I hope that the Minister will listen to this point. I know that he has other things to do, but I hope he is taking this on board.
I repeat the point for the Minister's benefit. The survey asked 5,000 firms about their involvement with Government programmes aimed at encouraging innovation. Only 6 per cent. were participating in those programmes. We need a genuine one-stop shop based on the American model, which has 900 small business development centres across America serving more than 500,000 small firms in partnership with federal, state and local government and community and private sector groups. That ensures that small businesses get a fair share of Government contracts and, through working with banks and investment companies, that they have access to affordable finance. We can learn a lot from that practice and I hope that we will see some action from the Government, not merely a shopping list that is yet to be delivered.
There are many key issues with which we need to be concerned in respect of innovation and enterprise, but let me emphasise a few of them. We need to promote a genuine innovation culture. That will call for creativity, an enterprising spirit, a taste for risk-taking and a willingness to be socially and geographically mobile. We need innovation and enterprise in our manufacturing industry.
What action will the Government take to promote best practice, to encourage the development of efficient supply chains, to promote application of new technology and to develop beneficial regional relationships? The Secretary of State spoke of those intentions in March. I want to know how far we have got.
For small and medium-sized enterprises, we need to create a climate of easy mobility for key workers, such as researchers and engineers. Young researchers and engineers must be able to work and gain experience in other countries--initially, perhaps, within the European Union. I welcome the Government's promise of new availability of finance for SMEs, but what SMEs really need are fewer hidden taxes, less regulation and lower business transport costs. In that context, hiking up the national insurance contributions of the self-employed is especially unhelpful.
What can the Government do? They can establish a legal, regulatory and financial framework that is conducive to innovation. They can seek improvements to the European patent system to reduce confusion and to prevent conflicting decisions being taken by different national authorities. The Government must really get their teeth into that.
The Government can extend help to enterprises and to researchers to protect intellectual property and combat counterfeiting. The opening arguments of the Minister of State were going the right way. I also welcome his comments on easier financing of innovation and encouraging venture capital funds to invest in the early stages of investment and innovative projects.
We also need robust information services to help individuals and enterprises to find out about sources of financing. I was horrified to find from the European Commission survey that only 6 per cent. of the firms surveyed in this country were taking part in Government programmes. If that is the best that we can do, what a waste of money and effort.
Finally, and most fundamentally, the Government can gear research to innovation. Too often in this country we develop a good idea, but never get it embodied into a product. The Government must find ways to step up research carried out in business; to encourage the setting up of technology-based businesses; and to intensify co-operative projects involving public research bodies, universities and industry, encouraging spin-off activities locally, regionally and nationally. The Government must address those key factors.
I have been speaking for more than half an hour. That may have become customary in this debate, but I believe that other colleagues would like to contribute, so I shall try to keep my closing remarks fairly short.
The Liberal Democrats have long recognised the importance of science and engineering in promoting competitiveness. In a world of global competition, the development of science-based industries is essential. Continuous adaptation and change are vital. When products quickly become out of date and skills and machinery become obsolete, we must adapt; we must change. The application of science and technology are integral to the search for sustainability. New technologies not only are more often research and energy efficient, but can be harnessed to develop more sustainable processes. We have a chance in this country to take a lead in developing such products and engineering processes.
We all know that high-quality education and training are essential to our competitiveness if we are to be part of the group of knowledge-based economies of the 21st century. However, we must put in the investment. As the Minister said, we must ensure that members of the work force--our human resources--have the skills to provide them with the opportunity to work for life.
We must support academic research as well as the bid-based research that seems so popular at the moment, because leading-edge research is not only the source of new ideas, but a training ground for those who can translate those ideas into innovative products and processes, and a strong science basis is an essential underpinning for the industries of the future. Governments should not shirk their funding responsibilities for science research.
The Government should make a commitment to aim to increase the science budget for the United Kingdom, so that we again invest in science research to the same level as our industrial competitors in other parts of the world. We have sadly fallen behind in the past few years.
"knowledge transfer"
and
"stimulate the flow of scientists and engineers into industry".--[Official Report, 10 March 1999; Vol. 327, c. 368.]
We are still waiting for that strategy. We were promised a Small Business Service. I shall return to that point, because we have made some progress this morning.
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