Select Committee on Science and Technology Sixth Report





  1.  NESTA's expenditure and its funding commitments for 2001-2002 are contained in its Business Plan, which is found in its Annual Report for 2000-2001.[43] More detail is provided in the full published accounts.[44] NESTA's Business Plan also contains targets for the number of awards it intends to distribute over the coming year. The Business Plan for 2001-2002 was the most recent available to us. It shows a total commitment of 12.8 million, broken down over the three main programmes and non-programme related costs. However, the figures we received from NESTA after our evidence session were significantly different.
  2. Table 3: Costs for year 2001-2002





    ( million)

    Invention and Innovation

    ( million)


    ( million)

    Non-programme costs

    ( million)

    Business Plan











    In its initial memorandum, NESTA gave us figures for total expenditure to April 2002. These showed a total commitment since 1999 of 4.45 million to Fellowships, 5 million to Invention and Innovation and 4.49 million to Education. Lord Puttnam told us that NESTA spent 30% of its programme expenditure on Fellowships, 30% on Education and 40 % on Invention and Innovation.[45] This does not appear to be reflected in the figures we were given after the evidence session. We suspect that this confusion stems from the differences between "expenditure" and "commitment". NESTA's full financial accounts for 2000-2001 include breakdowns for "soft commitments", "hard commitments" and "provision for hard commitments".[46] The figures NESTA gave us appear to be those for hard commitments. We recommend that NESTA be clearer in its terminology when presenting financial information.

  3.  In oral evidence with NESTA in July we tried to get a clearer picture of what had been spent where. We found confusion on the subject. For example, we asked about the 8 million that had been committed in the Business Plan to Invention and Innovation and Fellowships in 2001-2002. Jeremy Newton told us "and Education. The figure definitely was spread across all three [programmes]".[47] We asked about the 5 million which had been committed to 81 Invention and Innovation projects since 1999, according to NESTA's memorandum.[48] Jeremy Newton replied "That splits across both the Invention and Innovation and the Education programme".[49] Both these replies were at odds with the information we had obtained from NESTA's Business Plan and memorandum. Lord Puttnam then told us that "roughly 8 million has been spent on Invention and Innovation and 6 million each on Education and Fellowships".[50] We were told these were the up-to-date figures, which included activity to the end of June 2002. It seems unlikely that the totals had increased so much in three months. We assume that NESTA's accountants know how much it has spent and where, but it is worrying that the Chief Executive and Chairman can demonstrate such vagueness, not over thousands of pounds, but over millions. We note that NESTA's business plan for 2002-03 is still not available on its website, even though we are six months into the financial year. We are disturbed at NESTA's lack of clarity surrounding its programme expenditure. We expect the next Annual Report to provide reliable figures, making it clear what has actually been spent and what is an estimate.

    Administration and staff

  5.  NESTA's initial memorandum did not include a figure for its administrative costs. The Business Plan committed 1.4 million to non-programme related costs in 2001-2002. NESTA told us that expenditure on administration in 2000-2001 was 1.27 million, which represents 9.8% of income for the year.[51] The AHRB told us that its running costs were subject to a cap of 5% of total expenditure.[52] The Research Councils are required to spend less than 4% of their total expenditure on administration. The breakdown of NESTA's expenditure on operating costs revealed that in 2000-2001 it spent substantial sums on agency staff and IT costs, respectively 149,000 and 185,000. NESTA explained to us in writing that this was in a period of development for NESTA. NESTA also has a target in its Business Plan for staff numbers which is set at 35. The 2001-2002 Business Plan included costs for 48 staff. We asked NESTA to explain. Jeremy Newton told us that the extra staff were partially made up by the Science Year team.[53] As we were told that these staff were funded by DfES, we do not see why they are accounted for in NESTA's Business Plan. We were told other staff were working on 'off-line arms' length projects'.[54] We asked whether or not staff levels would return to 35. Lord Puttnam replied "I do not think there is a hope in hell that we will keep to the 35".[55] If this target is unrealistic, it needs to be readdressed and new targets made. We understand that NESTA may have faced high operating costs during its development. Nevertheless we hope to see administration decreasing as a percentage of NESTA's income in the future. We also urge NESTA to make a realistic estimate of its staffing needs in order to minimise the amount spent on agency staff and permit accurate financial planning.


  7.  NESTA was set up with an endowment from National Lottery funds of 200 million. The National Lottery Act requires NESTA to maintain, at least, the initial cash value of this endowment and to invest it via the National Debt Commissioners.[56] The core endowment can only be invested in very safe funds, as laid out in the Trustee Investment Act 1961. Income generated from the core endowment can then be invested in a far wider range of investments by an independent financial manager. In 1998, it was envisaged that the endowment would provide an annual income of around 12 million. In 2002, NESTA's annual income was close to 8 million per annum. Lord Puttnam explained that this was due to "the lamentable regulations that require us to invest in the worst-yielding government stock. That has hurt us particularly in the present economic climate. Frankly, if our original regulations had been more flexible, we could have invested the same money equally safely in something that gave us a significantly better return".[57] Treasury Bills, where most of the endowment is invested, are linked to interest rates, so returns in 2002 are low.
  8.  NESTA told us "the original conception (before it ever appeared on the statute book) was of NESTA as a half a billion pound endowment".[58] Under the National Lottery Act 1998, the Secretary of State for Culture, Media and Sport has the power to increase NESTA's endowment. NESTA has applied to the Department for Culture, Media and Sport for a graduated increase of its endowment to 500 million. It would like to expand its work in its different programmes, for example to create junior fellowships, provide second stage funding for projects in Invention and Innovation and expand the funding currently provided under that scheme. Lord Puttnam told us -
  9. "I am making a very, very powerful case to DCMS: I think they will be making a shocking mistake not to increase our funding. It does not mean that they will not make a mistake, because there are many, many mistakes made in government, but I think they would be making a tremendous mistake, and it is, I am afraid, whether you like it or not, a remarkably small sum of money to be tackling the brief we have been given".[59]

  10.  The Department for Culture, Media and Sport's memorandum states that it supports "in principle, some elements" of NESTA's bid for an increase in its endowment by 300 million and "is considering carefully the funding options".[60] We formed the opinion from the evidence given by Jeremy Newton that DCMS might be interested in expanding some of NESTA's schemes, such as the Fellowships and the Invention and Innovation awards, but had not given a blanket go-ahead for the increase in funding. Lord Puttnam estimated that DCMS would meet NESTA "half-way" in the first instance.[61] We believe it is premature for NESTA to request a significant increase in its endowment. First it must better demonstrate its cost-effectiveness and be clear about how it would use its extra funds. It is a bit rich for an organisation getting 8 million a year to distribute in grants and bursaries, to go asking for more, when it is unable to maintain a clear grasp of how much it is spending and on what.


43   Eg Take the Plunge, NESTA's Annual Report 2000-2001 Back

44   National Endowment for Science, Technology and the Arts Account 2000-2001, HC 285, published October 2001 Back

45   Q 15 Back

46   HC 285 Back

47   Q 30 Back

48   Ev 18 Back

49   Q 17 Back

50   Q 18 Back

51   Ev 23 Back

52   Ev 31 Back

53   Q 45 Back

54   Q 45 Back

55   Q 46 Back

56   Looking Ahead, NESTA's strategy 2000-2003, section 4 Back

57   Q 12 Back

58   Ev 21 Back

59   Q 50 Back

60   Ev 30 Back

61   Q 12 Back

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