Conclusions and recommendations
UK Productivity
1. We
conclude that the productivity gap, highlighted in the 1998 Competitiveness
White Paper, between the UK and its main competitors, still exists,
albeit at a reduced level. We believe there remains some way to
go before the UK economy matches the productivity levels of its
main competitors. The performance of the UK's knowledge-based
industries will be crucial in raising the UK's productivity performance
in the future. Evidence from the UK's relative position amongst
the G7 in the knowledge-based goods and services trade data and
the importance of knowledge-based industries to the UK economy,
as shown by the importance of these industries to UK output, suggests
that the UK has a competitive advantage in knowledge-based industries.
However, most of this advantage appears to be attributable to
knowledge-based services. The UK still has a comparative weakness
in high- and medium-high-technology manufacturing industries,
relative to its main competitors. (Paragraph 14)
R & D Expenditure
2. The
UK Government stated at the time of the 2004 Budget that one of
its long-term objectives for the UK economy was to raise gross
domestic expenditure on R&D (GERD) as a percentage of gross
domestic product (GDP) to 2.5 percent by "around 2014".
We find it inconsistent that it had previously endorsed the EU-wide
Barcelona Summit target of "three percent of GDP by 2010".
We recommend that the Government clarifies by which of these targets
its future performance for encouraging R&D will be judged.
(Paragraph 20)
Business Investment in R & D
3. It
remains too early for us to draw any meaningful conclusions on
whether tax credits can halt the relative decline in UK business
investment in R&D. Their introduction by the present Government
has certainly enabled the UK to match the incentives provided
by our competitors to overseas businesses looking to invest in
R&D abroad. It is expected that this will have a positive
effect on foreign businesses' decisions to invest in R&D in
the UK, which ultimately could increase R&D
intensity in the UK. (Paragraph
27)
4. We note that the
number of claims for R&D tax credits by SMEs in the UK peaked
in 2002/03. This could, in part, be due to R&D tax credits
in the past having been used by SMEs to replace their previously
committed spending on R&D. If the Government is seriously
committed to increasing R&D through SMEs it could do more
to encourage those businesses which are not currently expecting
to undertake R&D to do so. We recommend that the Government
reassesses the way in which it advertises the availability of
tax credits to SMEs in the future to ensure that all SMEs that
wish to carry out R&D are made aware that they can claim these
tax credits. This could be achieved through the Regional Development
Agencies and the Small Business Service. (Paragraph 28)
5. We commend the
Government for extending the definition of R&D at the time
of the 2004 Budget. We agree with our witnesses that there remains
scope for further extension of the R&D costs definition. For
example, consideration should be given to include research facilities,
such as costs for their establishment or rental costs, in the
R&D costs definition. (Paragraph 29)
Science research infrastructure investment
6. We
are concerned that, eight years after the Dearing Report, which
identified a backlog in science research infrastructure investment
in the UK, this backlog still remains, despite Government funding
through the Joint Investment Fund (JIF) and Science Research Investment
Fund (SRIF) of almost £2 billion. (Paragraph 44)
7. We recommend that
the Government should conduct a mid-term study of the current
round of Science Research Investment Fund (SRIF3) to re-assess
the extent of remedial investment required in higher education
institutions. If such a survey finds that there remains a significant
investment backlog, then the Government should consider committing
itself to extending the Science Research Investment Fund for a
further two years (2008/09 and 2009/2010) or until such time as
the backlog has been cleared. However, if such a commitment is
to be made, the Government must satisfy itself that SRIF awards
are being used appropriately by higher education institutions
to overcome the problems they were intended to solve. (Paragraph
45)
Research assessment
8. We
are encouraged that the latest guidance from the UK's Funding
Councils for the panels which will carry out Research Assessment
Exercises (RAE) in 2008 (from which quality funding for higher
education institutions for the following six years will be determined),
contains extensive advice on how to deal fairly with interdisciplinary
and multidisciplinary research as recommended by both Sir Gareth
Roberts' Review of Research Assessment and the Lambert Review
of Business-University Collaboration. (Paragraph 53)
9. However, we are
disappointed that the recommendation of the Lambert Review, that
when research is assessed: "excellent research undertaken
with industry or other users should be recognised as being of
equal value to excellent academic research" has not been
highlighted in this guidance. We therefore recommend that any
future guidance provided to the panels should carry a section
on the treatment of applied research with business or other outside
institutions. This should provide that, given the work is of a
sufficient quality, it should be considered in the same way as
if it had been carried out in a purely academic
environment. (Paragraph 54)
Collaboration in research ventures
10. The
evidence suggests that higher education institutions and businesses
are collaborating more frequently in research projects in the
UK. Both the proportion of public sector R&D funded by business
and the number of papers produced jointly by employees of higher
education institutions and business have increased since the Competitiveness
White Paper. The UK's higher education institutions have also
improved their ability to exploit the intellectual property they
create through the creation of spinouts and by transferring that
knowledge to the wider economy through the greater use of intellectual
property rights such as patents. However, since the White Paper
the UK's knowledge exploitation performance against its main competitors
has been disappointing. The UK's relative position against the
rest of the G7 has remained unchanged, while emerging competitors'
relative performance has improved. The proportion of higher education
R&D expenditure sponsored by business in the UK is falling,
the quality and value of spinouts from the research base remain
in question and the UK's poor patenting performance in its main
commercial markets has persisted. These are all areas in which
we believe the Government has a greater role to play in raising
the UK's relative performance. (Paragraph 68)
Intellectual property
11. We
look forward to the results of the Lambert Working Group on Intellectual
Property and the review of the Intellectual Property Advisory
Committee. We believe that the working group, combined with the
introduction of legislation to resolve disputes over intellectual
property, are the first steps in reducing the barriers to knowledge
transfer through higher education and business collaboration.
However, these measures should be seen only as a starting point.
We are convinced that further intervention in this area will be
required in the future as we are unsure that these initiatives
will be sufficient to remove all the barriers which inhibit collaboration.
More work needs to be done to enhance knowledge transfer and exploitation,
especially in improving businesses' awareness of the benefits
of collaborating with the research base. (Paragraph 77)
Knowledge integration communities
12. In
our opinion, the Cambridge-MIT Institute (CMI) project represents
a unique innovation in UK higher education. Although the Government
has recognised that developing and disseminating models from the
CMI is a long-term project, it has not yet committed itself to
extending the contract with CMI or committed resources for the
future. The Government has suggested that the CMI could bid for
established Government funding through open competition. We do
not believe this is the best way forward. We have no doubt that
the CMI project would prove successful in bidding for such funds.
However, this could preclude other research institutions from
gaining valuable funding for projects which could be of equal
benefit to the UK economy. We recommend that future funding for
the CMI project to continue its work be committed by the Government
as soon as possible. However, we do not believe that this funding
should be committed over the 10 to 15 year time horizon the CMI
believes it will take for the full impact of its work to be realised.
Funding for the next six-year period would seem appropriate, at
which time the project should be reassessed. (Paragraph 92)
The Governments investment strategy
13. The
Government has set out its investment strategy in programmes to
enhance the science and innovation performance of the UK over
the next ten years in its Science and Innovation Investment Framework
2004-2014 document. We recommend our successor Committee to revisit
the progress which has been made towards the knowledge driven
economy towards the end of the ten-year time frame set by the
1998 Competitiveness White Paper. As part of this work, we expect
that our successor Committee will also wish to review the progress
which has been made with regards to the ten-year science and innovation
strategy. (Paragraph 96)
ICT and workforce skills
14. Improving
productivity from ICT investment requires more effective use of
ICT through an improvement in the ICT skills of the workforce.
We are aware that the Government has increased the resources and
programmes for improving the UK population's basic ICT skills.
These have ranged from the recently released e-learning materials
to aid primary school teachers to plan across their curriculum
using ICT to offering basic ICT skills as a third area of adult
basic skills, alongside literacy and numeracy, within its main
programmes for adult learning such as the Skills for Life programme.
(Paragraph 106)
15. Improving the
ICT skills of the workforce should not be left solely to the public
sector. Businesses are the ultimate benefactors of a well-trained
workforce and should encourage their employees to improve their
ICT skills. This could be achieved through the development of
businesses' own ICT skills strategies. Moreover, however well-trained
the workforce, the benefits of ICT will be small unless senior
managers have an informed, well thought out strategy to deploy
ICT to increase productivity. This is not the job of government.
Companies themselves need to place more emphasis on managers formally
improving their knowledge and understanding of the benefits and
commercial opportunities offered by the effective use of ICT.
(Paragraph 107)
Public procurement
16. Governments
which directly invest in the effective use of ICT, for example
by offering successful on-line public services and 'smart' public
procurement practices, can increase awareness, amongst businesses
and the broader public, of the benefits of ICT. However, even
if government provides all its public services on-line there is
no guarantee that their use will be taken up by the whole population.
On our visit to the US, the City of Chicago, an exemplar for the
provision of on-line public services, suggested to us that only
one-fifth of the population use the on-line public services they
provided. (Paragraph 117)
The impact of offshoring
17. The
figures supplied to us by NASSCOM to show the benefits for the
UK from offshoring CCCs to India appear to highlight only the
positive aspects for the UK. Negative consequences to the UK economy
from offshored jobs, such as the cost of laying off UK workers
and currency transaction costs, were not included in their analysis.
The analysis also assumed that the UK and World economies would
continue to expand and no analysis was provided for the case if
this is not so. Although we agree that there is evidence of a
positive benefit to the UK from offshoring we remain unconvinced
that the magnitude of the benefits is quite as high as suggested
by NASSCOM.
(Paragraph 133)
18. Outsourcing and,
in particular, offshoring, provides UK businesses with the solution
to specific needs, for example lower costs and the ability to
expand operations quickly. However, businesses need to be sure
that these benefits are weighed against the costs they could incur
from poorer infrastructure and lower consumer confidence. (Paragraph
149)
19. We are aware that
the Government is currently in the process of compiling a more
detailed response to the issue of offshoring and we look forward
to its results. We recommend that the Government keep this situation
under review. If it becomes clear that job losses in the service
sector are becoming a serious problem, we have no doubts that
this will be one area our successor Committee will want to pursue
in the future. (Paragraph 150)
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