Examination of Witnesses (Questions 60-79)
26 OCTOBER 2004
SIR ROBIN
YOUNG KCB, DR
DAVID EVANS
AND MR
IAN JONES
Q60 Mr Hoyle: The worry will be that
is all right for the big players in the market, the big companies,
but where does that leave the SMEs?
Sir Robin Young: They are not
covered by the R&D scoreboard but SMEs vary as well and they
also vary as between sectors. The take-up of the R&D tax credit
by SMEs is in-line with the Treasury's aspirations, I think. There
was some confusion about the bureaucracy and the form filling
but as they make it easier for them to do, and each time it has
changed it has become more user friendly, we expect to see higher
take-up by SMEs of the R&D tax credit. The challenge is to
get private industries, small and big and medium, interested in
taking advantage of the innovation opportunities we have got and
if we fail that challenge then we are going to lose as an economy
because it is plain we cannot win on low costs in the globalised
competitive world we are in. It is absolutely essential that we
somehow drive into business the wish to innovate further and to
take advantage of the technological expertise we have got. That
is why the money is going into both the university sector but
also the DTI's budget to the technology strategy which is going
to use business people to try and pick technologies where there
is an opportunity for British firms and then give grants to the
development end of things as well as the research end of things.
Q61 Mr Hoyle: Technology transfer is
very important, to ensure that we are aware of that.
Sir Robin Young: Very important.
Q62 Mr Hoyle: The other thing is do you
think that of the money that is coming from the private sector,
too much is going into D and not enough into R or are you comfortable
with the way the spend is taking place?
Sir Robin Young: I think it varies
is the truthful answer. It varies both between sectors and companies.
What we are trying to do is to get the expertise and right forums
to discuss exactly that issue with the private companies and we
have made leaps and bounds. The conversations we are having now
with the Office of Science and Technology part of DTI and the
business-facing part of DTI is a completely different conversation
than it was five years ago. Moreover, universities can no longer
be caricatured as interested only in inapplicable research, so
the atmosphere since the Lambert Report and since the 10 year
framework has come out is changing. We hope there will be, and
the country needs there to be, a step change in the way in which
we exploit our technological skills.
Q63 Mr Hoyle: Final question: do you
believe that tax credits are pitched at the right level or do
you think there ought to be a little bit of movement by the Treasury
to attract more money? How does that compare to foreign tax breaks
from the main competitors?
Sir Robin Young: The Treasury
have changed this looking at the evidence of take-up and what
has actually happened year by year and, if I may, I think that
is the right approach. There is a danger that if you move straight
to what looks like a more generous scheme you just get dead weight.
What the Treasury have done is review experience year-on-year
and both altered the administration, which was a problem, and
some of the rules. I think that is the right approach.
Q64 Mr Hoyle: Competitors?
Sir Robin Young: Competitors do
it in different ways. Certainly there is a lot of interest from
within the EU.
Q65 Mr Hoyle: You are very good at scoreboards
and ticking them, but how do we score?
Sir Robin Young: On innovation
we score—
Q66 Mr Hoyle: No, on tax breaks.
Sir Robin Young: You cannot compare
like with like because if you are in Germany you cannot find where
the money comes from, the Laender or the Federal Government
and the French do it differently again. I do not think we can
do like for like. There is a lot of interest in other EU Member
States in our tax credit system.
Chairman: Tax credits are only all right
if you are making money. The problem is that for a company that
is toiling and is not making a profit but needs to invest, is
not necessarily going to the wall but is not making a profit,
tax credits are—
Q67 Mr Hoyle: Pointless.
Sir Robin Young: That is where
the technology strategy comes in because there we have grants
which are not tax credits.
Q68 Chairman: So you start choosing winners.
For years we have said that we cannot pick winners but you are
now choosing technologies, or you are helping companies that are
not making their profits, you are giving them grants, what is
the difference?
Sir Robin Young: The decision
was taken—I think it was the right one—to look and
see where the UK has a technological advantage and where there
are opportunities for firms in particular sectors to benefit from
particular technologies. We are faced with a mismatch between
scientific and academic excellence and poor take-up of that excellence
by business so we had to do something. What we have done in the
technology strategy is make sure it is business-led, so we have
a technology advisory group which is looking at the various technologies,
nanotechnology being the obvious one but also others, and we are
inviting bids from consortia of universities and business to try
and exploit those technologies. I do not think that is quite picking
winners in the way that used to be—
Q69 Chairman: That might be a slight
caricature. In the run-up to budgets we get the CBI and EEF, people
like that, arguing for systems of grants that are more generous
than the Treasury is prepared to offer.
Sir Robin Young: Yes.
Q70 Chairman: So far this morning I would
have difficulty in putting a Rizla paper between the DTI and the
Treasury on virtually anything from what you have said.
Sir Robin Young: Good for my career!
Q71 Chairman: More important than the
state of both of our careers, you are talking about your pension!
I did not really get the impression that outside of the inner
sanctum of Government there is much in the way of creative tension
between the two departments on matters like industrial support.
One would have thought that your business directors should be
advising you not just on how to fill in forms or produce forms
that are more user-friendly but how to try to screw more money
out of these people. 25% cuts notwithstanding they are trying
to get the kind of industrial support which other countries seem
to be able to find for some of their businesses. Do you have figures
that suggest that Britain is giving more than other countries
or are there tables that show that industrial assistance in the
UK is superior to that offered in the Federal Republic or in France?
Sir Robin Young: Your first point
first. You cannot really expect me to expose all of the bargaining
we did with the Treasury in the run-up to the Spending Round.
Q72 Chairman: Why not?
Sir Robin Young: Even with a friendly
Committee like this, I do not think I can do that. You can take
it, and indeed it was widely leaked, that we were bidding for
things that we did not get. We are not unique among government
departments in that way. I promise you, we were doing the best
for our stakeholders. Equally, some of our stakeholders speak
with slightly forked-tongue, in wanting tax cuts and reduced spending
whereas they like increases to favourite little grants; so we
too meet some slightly non-compatible requests from our stakeholders.
But we did, I promise you, do our best in putting forward good
ideas which, in our view, would have benefited our sectors but
which the Treasury said were unaffordable. That is, I hope, a
statement of fact which you must accept. Within the EU, the tables
show—and I do not have the exact tables—that we give
less financial assistance than most EU Member States. That is
something we are proud of, because we believe that makes our industry
stronger. We are not entering into a game whereby we try to match
the generosity of the most generous EU Member State, on the grounds
that British business will prosper more without State assistance.
Q73 Chairman: The truth is that we are
less productive than our German and French competitors. Our productivity
levels are lower, our levels of investment are historically lower,
and in a number of areas we are losing market share. This: "We
are better because we keep them hungry" is a pretty primitive
way of looking at this, is it not?
Sir Robin Young: We want sustainably
successful business in Britain. It is argued by this Government
and previous governments that the way to do that is not to pour
in public subsidies. In our view, the subsidies in the EU Member
States, many of them, will prove unaffordable and their businesses
will in the end suffer.
Q74 Chairman: They are taking a long
time to die off, are they not?
Sir Robin Young: Some of them
are actually not taking that long to die off. Still, I do not
want to sort of gloat in that way but it surely is not—
Q75 Chairman: I do not see you have grounds
for gloating, frankly. That is the point I am trying to make,
that this kind of making a virtue out of the impoverishment of
parts of British industry, when other countries, our competitors,
are giving their people, maybe not as much as they used to but
still a chance, and we are seeing businesses going to the wall
because of the parsimony of the Treasury and the inability of
yourselves to marshal a winning argument against them.
Sir Robin Young: You are tempting
me, are you not, into ministerial policies really, and I think
I have gone as far as I can. I have, I think, loyally supported
current ministerial policy—which is my job—and that
is the argument: that State subsidy, and increased State subsidy,
is not the way to get sustainably successful British business.
Q76 Chairman: On that basis, of course,
you would not give any subsidy at all. You do, but the argument
is, in some of our views, that you do not give enough.
Sir Robin Young: It is carefully
targeted to places under technology and other headings and/or
regions.
Q77 Mr Berry: What is the difference
between a subsidy and an R&D tax credit?
Sir Robin Young: Tax credit and
grants for particular purposes are what we do, but, as the Chairman
was saying, it does not come up to the cost of subsidy: strictly
speaking, it just meets the difference between profit and loss.
A support for particular aspects of technology or regional assistance
is part of our own objectives, so we are proud that we give regional
assistance, we are proud that we support technologies.
Q78 Mr Berry: But they are all subsidies
to private sector activity.
Sir Robin Young: They are, but
they are targeted to particular technological advance.
Q79 Mr Berry: Yes, but—
Sir Robin Young: I mean, I am
agreeing with you.
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