House of Commons - Trade and Industry

Select Committee on Trade and Industry Written Evidence

APPENDIX 10

Supplementary memorandum by the Department of Trade and Industry

TISC QUESTION 1

It has been suggested by the Government that the loss of low-tech customer contact centre jobs is inevitable. [8]

What is the Government doing to aid workers that are losing their jobs because of offshoring, especially in areas which have relied on customer contact centres to replace jobs lost when the traditional industries declined?

DTI RESPONSE

1. The latest surveys indicate that call centre companies expect to add more jobs in the UK in 2005. 58% of organisations plan to increase their staffing levels, while only 5% of companies say that they are planning to cut the numbers they employ.

2. Anxiety about job losses in call centres due to "offshoring" is understandable. However, by running an open and flexible economy, we have ensured that, for the last seven years, every job loss has been matched, and more, by a job gain. In every region of the UK, unemployment is down and employment is up.

3. We do recognise that there are transitional unemployment challenges for some regions and sectors. In such circumstances, we have in place a package of measures to help those affected by redundancy to find re-employment through the Rapid Response Service and Job Centre Plus.

4. People need to be able to gain job-focused skills training and improve their chances of a sustainable, productive place in the workforce. The UK's approach to achieving this is described in the Skills Strategy.

TISC QUESTION 2

A witness has told us that they believe there is a lack of a "clear" Government strategy to address the threat from low-cost economies. [9]Does the Government have a "clear" strategy with regards to the offshoring of the UK service sector? What developments have there been in Government policy towards offshoring since the May 2004 report, The UK Contact Centre Industry, [10]was published?

DTI RESPONSE

5. The UK Government has not followed in the footsteps of the US and France by attempting to introduce legislation to protect the service industry, but maintains the position that the decision to offshore should be a commercial one, and that Government should not interfere. Companies should, however, consider carefully the business case before offshoring to ensure that the decision is the right one. Recent studies would seem to indicate that the UK is actually benefiting from offshoring and that employment continues to rise despite jobs being transferred abroad.

6. The Secretary of State launched a debate on this issue in December 2003 and a public consultation was issued. She also chaired a Round Table discussion in February 2004 with representatives from Unions, Academics, companies that had offshored, and those who had decided against it. A response to the findings is contained in the White Paper on Trade and Investment, published in the summer of 2004. There was a further piece of research on this subject contained in the Software and Computer Services Sector Competitive Analysis. [11]The DTI is also in the process of compiling a more detailed strategic response to this issue, in order progress the debate further and to identify where more analysis needs to be done.

TISC QUESTION 3

We are aware of the global potential for UK Business Process Outsourcing, including customer contact centres, human resource management and accountancy services. [12]What is the Government doing to encourage UK businesses to develop in this sector? What is the Government doing to encourage employment in higher "value added" sectors?

DTI RESPONSE

7. The Government published the Trade and Investment White Paper "Making Globalisation a Force for Good" in July 2004. As a result of this paper, the DTI set up a steering group to investigate Business Process Outsourcing as a driver for UK productivity and to leverage the advantage that the UK has an early adaptor of this practice in Europe. The steering group is currently consulting widely with all stakeholders, including trade unions and both purchasers and suppliers of offshore activities.

8. The UK's approach enabling people to achieve "high value added skills" is described in the Skills Strategy.

TISC QUESTION 4

What progress has been made towards creating a national communications infrastructure that will allow UK business to be competitive in a global economy?

DTI RESPONSE

9. The White Paper, "Our Competitive Future: Building the Knowledge Driven Economy," [13]outlined that "revolutionary changes in ICT" were a key structural change in transforming the economy and society. One major development in the period since its publication has been the migration of businesses and consumers from dial-up Internet access to broadband. This has been and will continue to be key in creating this revolution.

10. The UK made a late start with broadband, but has been catching up very fast. In a table compiled by the OECD at the end of 2000, the UK was ranked 21st out of 30 countries for broadband penetration. In recognition of the importance of broadband for the economy, the 2001 white paper "Opportunity for All in a World of Change"[14] set the ambitious target to have the most competitive and extensive broadband market in the G7 by 2005, as well as outlining the UK National Broadband Strategy. [15]The latest review based on figures from March 2004, showed the UK ranked third in the G7 for both competitiveness and extensiveness up from fourth and fifth respectively in 2001 and closing on the leading two markets of Japan and Canada. [16]

11. In the past three years, broadband take-up in the UK has been remarkable, with around 50,000 additional connections now being added every week. There are over five million broadband connections in the UK, corresponding to around 20% of households. Broadband is now available to over 91% of homes and this is expected to rise to over 99% by summer 2005.

12. The UK telecommunications market is one of the most open and competitive in the world. The Communications Act 2003 continued has encouraged further growth and innovation by moving the UK away from a licence-based system to one where companies are operating under a "general conditions of entitlement" regime. These general conditions constitute a set of rules that operators are obliged to comply with, overseen by the independent regulatory body, Ofcom.

13. Total end-user (residential and business) spending on telecoms services grew by 9% in 2003; this was despite a decline in traditional fixed voice spending and continued price falls. Over a quarter of fixed line customers now take regular call services from a provider other than BT; including mobile. BT now originates just over 40% of all voice calls in the UK. [17]

14. Over the last 10 years mobile share of total voice volumes in the UK has grown from next to nothing to over a quarter of all call minutes. In 2003 average household expenditure on mobile telecoms services (calls and text messaging) was greater than expenditure on fixed voice services (calls and access) for the first time. Twenty million mobile customers claim to use their mobile phone instead of making a fixed line call at least once a week.

15. The four GSM operators (Vodafone, O2, T-Mobile and Orange) were joined in March 2003 by the first 3G operator, "3". 3G is the next generation of mobile phone technology and offers far greater capability in data transmission and new services such as video clips, photomessaging, e-mail, games and information services. This development makes the UK one of the first markets in Europe to launch a 3G service and it is a clear vindication of the Government's strategy to increase competition by bringing a new entrant into the market which is dependent on 3G for its success (3 have no GSM network to fall back on).

TISC QUESTION 5

Some people believe that patents stifle innovation by preventing other companies or sectors from developing products or processes. [18]What is the Government doing to ensure the UK patenting and licensing regimes are not hindering innovation?

DTI RESPONSE

16. The Government recognises that there is a balance to be struck between the incentive for individual companies to invest in research and development, and the need to encourage wider access to new inventions to promote further innovation. The patent system plays a role on both sides: by conferring control over the use of an invention to the patentee, and promoting wider access via the requirement to disclose technical information in the published patent. The DTI, through the Patent Office, has been working to ensure that the correct balance is maintained.

17. The DTI's Innovation Report highlighted three particular areas, which can hinder successful use of the IP system:

— A lack of awareness of IP, particularly amongst SMEs.

— The difficulties, especially the cost, of enforcing IP rights for individual companies, particularly SMEs.

— The difficulties created by high and probably rising levels of IP crime.

18. To improve awareness amongst both the business community and the "innovators of the future" the Patent Office has launched an awareness campaign aimed at SMEs, "What is the Key?". [19]The Patent Office continues to deliver IP workshops at regional events including the HM Customs and Excise-led Business Advice Open Days, [20]and has been working with the Small Business Service to implement a programme of IP training for all Business Link advisors, which will be completed early in 2005. The successful THINK kit® [21] educational resource, version 1 of which reached over 70% of secondary schools, was relaunched in November 2004.

19. The belief that enforcing IP rights can be a costly and time consuming business can influence decisions on whether to adopt IP rights. The Patent Office continues to work on measures to reduce the difficulties of successfully using the system to help businesses gain the benefit of their innovations without the fear of being unable to protect them:

— A statutory instrument (SI) to extend the jurisdiction of the Patents County Court as a lower cost alternative to the High Court, was laid before Parliament on 9 September 2004. It is due to come into effect on 1 April 2005, as part of a package of measures to improve access to justice.

20. The Patent Office, in conjunction with enforcement bodies, government and industry, published a national IP Crime Strategy[24] on 10 August 2004. The aim of the strategy is to bring together government policy-makers, industry stakeholders and enforcers to create a coordinated approach to IP enforcement, using accurate and up to date information. An overarching Strategic Enforcement Group of stakeholders has been set up to oversee the allocation of tasks and resources. Within the Patent Office, an enforcement team and knowledge system have also been set up to assist the flow of information. The first national enforcement report is due to be published early in 2005.

21. The Lambert Working Group on Intellectual Property was set up, following publication of the Lambert Review of Business-University Collaboration in December 2003, to provide a suite of draft agreements that academic and business partners can use when negotiating a collaborative research agreement (CRA). In addition to a suite of draft agreements, which cover a number of different types of collaboration in terms of ownership of the IP, the working group has produced a set of supporting materials to provide guidance on how to decide what is the most suitable draft agreement for particular circumstances. Work is now underway to make the draft agreements and associated materials available on the internet.

22. The rapid pace of technological change and globalisation present significant challenges to the IP regime. The Intellectual Property Advisory Committee (IPAC), an advisory NDPB, was set up to advise DTI Ministers and the Patent Office on how intellectual property can best contribute to DTI and wider Government objectives; and to endeavour to identify problems with the way the IPR system is working and look for early signs of potential risk and challenges to the system. IPAC is currently subject to a performance review, which is likely to recommend changes to the committee's role and the way it operates as an advisory NDPB. One of its sub-groups is currently investigating the interface between intellectual property and competition law to identify current and future issues.

23. The UK Government continues to play an active role within Europe. For example, it was involved in detailed discussions that lead to a new Technology Transfer Block Exemption Regulation coming into force in 2004. This Regulation aims to simplify licensing through a move away from vetting all agreements to a system of self-assessment.

24. The Government believes that the work it is doing is maintaining the correct balance between incentive and access offered by the patent and licensing regimes. A recent study[25] by the Intellectual Property Institute (IPI) supported this view. It concluded that, in relation to patents for genetic sequences, the system is generally meeting the needs of those active in that area, which includes large and small companies as well as publicly funded and administered bodies, such as the NHS, MRC and University based organisations.

TISC QUESTION 6

The White Paper suggested that ICT offered huge potential for increasing productivity and therefore economic growth[26] but witnesses have suggested there is no guarantee that the UK will reap this potential dividend. [27]What have been the direct and indirect benefits of ICT for the UK economy in the last decade and how has this translated into increased GDP growth? What is the Government doing to improve the exploitation of ICT to make sure the UK reaps this potential benefit?

DTI RESPONSE

(What have been the direct and indirect benefits of ICT for the UK economy in the last decade and how has this translated into increased GDP growth?)

25. There is now clear evidence emerging that ICT does drive growth, provided that an economy has reached a minimum threshold of ICT development, with greatest benefits coming through a more sophisticated and effective use of ICT. The UK is amongst the leading economies for which the above criteria apply and several economists believe that the UK is on the cusp of an acceleration in productivity growth on the strength of its effective use of ICT. [28]

26. An assessment of the increase in business productivity associated with increased use of a range of ICTs was published in DTI Economics Paper No 8: Raising UK productivity—developing the evidence base for policy. This found that in 1995-2000 the growth in labour productivity in ICT-using industries was 3.72% pa compared with 0.20% pa for non-ICT industries. This study also showed that, based on results of DTI's International Benchmarking Study: Business in the Information Age and controlling for other variables, the average sales per employee was significantly and positively related to the intensity of use of connectivity technologies (including Internet access).

27. The DTI's International Benchmarking Study 2004 showed that increased efficiency and customer communication where key drivers of ICT adoption in the UK, with extremely high levels of businesses achieving the benefits expected. ICT can increase business efficiency, gain cost savings, improve customer service and greatly enhance their ability to communicate and operate flexibly. A recent survey of its members carried out by the IoD on broadband, for example, found that 84% of respondents who use broadband reported that it had boosted productivity, with 61% saying that it had delivered cost savings.

28. Business uptake and use of ICT has enabled the UK to position itself as a leading e-economy. [29]

29. The direct and indirect benefits of ICT for the UK economy can be assessed by looking at (a) the importance of the ICT producing sector in the UK economy and (b) the indirect benefits of the use of ICT on the productivity of the whole economy.

30. The ICT producing industries in the UK accounted for 6.7% of the total Gross Value Added at current basic prices (GVA) [30]for the UK economy in 2002, up from 5.5% in 1992. The GVA for the UK ICT sector has increased by 104% between 1992 and 2002, higher than the growth in GVA for the whole economy over the same period of 70%. Between 1992 and 2000, growth in GVA for the ICT sector was higher in each year than growth in GVA for the whole economy.

31. Over the 10 years to 2002, the increase in the GVA from the ICT sector has accounted for over 8% of the growth in GVA for the whole UK economy. [31]

32. The indirect benefits of ICT for the UK economy are those resulting from ICT use across the whole economy. This can be assessed by estimating the contribution that ICT investment makes to growth in GDP output or to average labour productivity (GDP growth includes a contribution from the growth of the workforce, which in the UK has been significant over the period 1995-2000).

33. One study, which makes such estimates, is by the Groningen Growth and Development Centre. [32]For the UK, real GDP growth over the years 19952000 averaged 2.89 % pa. ICT capital contributed an average of 0.69 percentage points pa to this growth over the period. Labour productivity growth over the same period averaged 1.76 % pa and ICT investment contributed an average of 0.96 percentage points pa to this growth.

34. Since 2002 a programme of research on firm level data, using data collected by National Statistics Offices, has been underway to examine the productivity effects of ICT investment, and the use of electronic networks. Its results, published by OECD in early 2004, present evidence from Australia, USA, Germany, Denmark, Finland, Netherlands, Japan, Italy, UK and elsewhere. [33]All find some positive correlation between ICT investment, use of e-commerce, computers or the internet within firms and measures of productivity.

35. The headline results for UK firms (using data up to 2002, and taking account of sector and other effects) include:

— significant, positive, productivity effects associated with hardware and software investment by firms;

— a larger impact on productivity (measured via value added) in service sectors;

— pervasive productivity impact across high and low IT using sectors, and across large and small firms;

— higher returns to IT investment in those sectors and regions where higher levels of skills are available;

— positive productivity effects of ICT investment and use separately identified in a number of sectors; and

— positive productivity effects associated with employee use of computers, and the internet, evident across industry.

36. The UK contribution to this work, also supported and published by DG Enterprise, [34]focused on e-commerce use and showed that the use of electronic transactions in manufacturing has two measurable effects:

— increased price competitiveness in markets, which usually exerts downward pressure on prices; and

— increased efficiency, the value added gains to buyers are larger than possible losses to sellers.

37. These results have since been updated and confirmed, and extended to certain areas in service industries. In addition, UK analysis has been published showing the effects of use of electronic business processes (automatic electronic links between buying/selling and other parts of business operations). [35]This demonstrates that:

— use of multiple electronically linked processes in firms is associated with higher levels of productivity; and

— effective patterns of e-business use are sector dependent; links to suppliers are most beneficial in manufacturing, links to customers in services.

DTI RESPONSE

(What is the Government doing to improve the exploitation of ICT to make sure the UK reaps this potential benefit?)

38. The Government has played a key role in facilitating the roll-out of broadband so that it is available to all, working to ensure a competitive broadband market and that the regulatory framework ensures that commercial decisions by private companies are aligned with the wider economic and social needs of the country.

39. ICT skills have been made a third skill for life, alongside numeracy and literacy.

40. The Government is working to ensure 100% capability of joined-up online government services, with key services achieving high levels of use, with the e-Government Unit in the Cabinet Office set up to take this work forward.

41. Through the Government's 1999 tax exemption on loaned computers, the Home Computing Initiative allows employers to implement a tax-exempt loan scheme for computer equipment for use by employees at home.

42. The DTI has embedded e-business as an integral part of the advice and information provided under the Department's two best practice products.

— Achieving Best Practice in your Business is information and awareness-raising programme giving access to best practice guides, case studies, fact sheets and online tools.

— Support to Implement Best Practice makes available practical tailored support for SMEs to implement best practice improvements.

43. The Business Link website (businesslink.gov.uk) provides a single point of access to government information and can assist businesses start, improve or grow by providing free advice, possible funding and training.

44. DTI works in partnership with Interforum to promote the annual e-Commerce Awards. These are acknowledged as the leading e-business awards and are aimed at recognising and rewarding SMEs that have used ICT to transform their businesses.

TISC QUESTION 7

A witness suggested that the impact of ICT investment on recent GDP growth in the UK has been around half of that in the US. [36]Could this be because UK firms have invested less and later in ICT than those in the US and we are experiencing a "productivity lag" such that investment in ICT is slow burning? If so what explains this?

DTI RESPONSE

45. The impact of ICT investment in the UK on growth has been less than than in the USA in the years 1995-2000 but it has not been as low as suggested above. For the UK, real GDP growth over the years 1995-2000 averaged 2.89% pa. Labour productivity growth (output per hour worked) over this period averaged 1.76% pa and ICT investment contributed an average of 0.96 percentage points pa to this growth. [37]In the USA, average real GDP growth in this period was 4.2% pa and there was 2.21% averaging 1.15 percentage points pa.

46. Underlying these growth figures is the fact that UK businesses have invested less and later in ICT than those of the USA. In the UK, ICT investment accounted for 5.6% of total non-residential Gross Fixed Capital formation (GFCF) in 1980, for 13.8% in 1990, and 22% in 2000. For the USA, ICT investment as a proportion of total non-residential GFCF rose from 15.5% in 1980 to 22.8% in 1990 and to 29.6% in 200037. The US started accumulating ICT assets far earlier than any other country. The UK started from a lower base and is still a long way behind the USA—a research finding from a NIESR paper is that in 1999 US ICT capital stock per hour worked was 2.6 times higher than that in the UK[38]. The UK cannot therefore expect to reap such substantial dividends from ICT in terms of productivity growth.

47. It is quite possible that the positive effects of investing in ICT do take sometime to emerge. The OECD publication "The Economic Impact of ICT" states that "There is little research and certainly no consensus on the timing of performance gains from a given ICT investment", but according to Cisco Systems Inc CEO John T Chambers "the greatest payoff doesn't come until seven to nine years after an investment is made" (Business Week, 17 February 2003, p45). Results by Brynjolfsson and Hitt (2002) indirectly suggest that the lag might be from three to seven years. Not only are there possibly lengthy lags, it has been suggested that the immediate effect of a technology investment might be negative (Huggett and Ospina, 2001). [39]

48. The firm level analyses carried out in OECD countries have identified the importance of other factors in obtaining productivity benefits from ICT. Complementary investments in skills and organisational change, and possibly the propensity to innovate, are important factors in co-ordination with ICT usage in helping firms to enhance performance. These changes, along with the introduction of new technology, may explain the potential time lags before benefits of ICT investment are measurable. [40]

TISC QUESTION 8

A witness suggested that the public sector has strengths in its various roles as purchaser, exemplar, sponsor and regulator. [41]How can these be developed into a virtuous circle to the benefit of the UK economy as a whole? Given that the public sector is the largest employer in the UK, what is the Government doing to improve the ICT skills of its workforce?

DTI RESPONSE: HOW CAN THESE BE DEVELOPED INTO A VIRTUOUS CIRCLE TO THE BENEFIT OF THE UK ECONOMY AS A WHOLE?

49. Government plays a crucial role as customer, in stimulating innovation, new markets, encouraging private sector investment in skills, technology and R&D.

50. The Innovation Report published in December 2003 set out a clear path for action and Patricia Hewitt is driving forward the intelligent procurement agenda at ministerial level across government.

51. DTI continues to push for the reform and changes to practice that will encourage the growth of innovative and dynamic businesses.

DTI RESPONSE: GIVEN THAT THE PUBLIC SECTOR IS THE LARGEST EMPLOYER IN THE UK, WHAT IS THE GOVERNMENT DOING TO IMPROVE THE ICT SKILLS OF ITS WORKFORCE?

52. Civil Service departments and agencies have long identified ICT skills as an important skills requiring development. This is reflected in the priority given to these skills in departments' competence frameworks and their approaches to skills development. Approaches to addressing ICT skills needs vary, but include e-learning packages available at the desktop, training courses on specific software packages, training to gain ICT qualifications including NVQs, Apprenticeships and ECDL, use of the Skills Framework for the Information Age. The Cabinet Office has put in place framework agreements that departments can draw upon for the provision of ECDL and will be looking to promote ITQ across government over the next year.

TISC QUESTION 9

The same witness suggested that "some commentators have speculated that on-line education could become the economic growth opportunity of the 21st Century".[42] How does the UK compare to other countries in developing this and similar markets? What is the Government doing to create the right environment where such opportunities can be realised?

DTI RESPONSE

53. Digital and online technology has much to offer education and children's services. Much of this work is being led by the DfES. The DfES is developing a cross-sectoral e-strategy to bring together the various players.

54. The e-strategy is focused on awareness raising and skills development to stimulate the market for innovative e-learning products that encourage interactive learning, teacher support, and assessment.

55. The e strategy is being developed in consultation with ICT industry through the DfES's "ICT in Industry Club" which has around 400 members focused on partnership working, market development and government procurement.

56. International comparisons on e-learning are difficult as recent studies with comparable methodologies do not exist. DfES is supporting European work on benchmarking education to rectify this problem for European comparisons. As part of the eEurope2005 Action Plan, a survey of teachers and head-teachers over a two-year period will begin in 2005. This survey will build on work connectedness and pupil ratios carried out in 2001 and 2002 and develop data on attitudes and usage. Further survey work on business access to e-learning, government e-learning, buying and selling online, e-business readiness, security and broadband penetration is currently under discussion.

TISC QUESTION 10

According to some studies the UK has the second best environment, after the US, for e-commerce[43] with the gap between the UK and the US being largely driven by differences in infrastructure. What progress has been made to close the gap by creating a UK communications infrastructure and how effectively is that infrastructure being used? What are the UK's other competitors doing to close the gap on the UK?

DTI RESPONSE

57. The sophistication scores of several countries have declined since 2003 showing us that our competitors apart from Sweden and Ireland have stood still. In terms of absolute positions Sweden, Ireland and the UK form the leading group, followed by Germany, South Korea, Canada, the USA and Australia. Italy, Japan and France.

58. The International Benchmarking Study (IBS) 2004 shows that overall levels of ICT sophistication have remained largely unchanged in many countries. Sweden has shown the greatest overall improvement and tops our sophistication index and leads the world in Environment, Adoption, Technology, Process and Deployment. Swedish businesses are now the most likely to gain and share technology information with customers and suppliers and to interact online with Government. The USA and Canada have slipped in their overall Sophistication Index, due partly to declines in their own levels of sophistication and due also to the rise in sophistication of Sweden and the UK. Japan France and Italy recorded the lowest sophistication scores.

59. The IBS also shows good levels of ICT adoption by UK businesses compared to our major international competitors; 95% of businesses[44] have internet access, 86% have a website, with 69% having a broadband connection to the Internet. The UK is amongst the leaders for the adoption of new technology such as Voice over IP and desktop video conferencing. The IBS also suggests that the UK is one of the leading countries for sophisticated use of ICT by business—coming second of the eleven countries surveyed in the study's Sophistication Index—and the UK ranks second in the Economist Intelligence Unit's e-Readiness rankings for 2004, a study that looks at wider aspects of a country's overall ICT environment.

TISC QUESTION 11

Witnesses have suggested that the UK has not reached its target of being the best environment for e-commerce, but that it has made substantial progress. [45]How far is the UK from achieving this target? How significant are issues like the exponential growth of SPAM, inappropriate mailing and security concerns in undermining enthusiasm for ICT? What is the Government doing to give consumers more confidence in the security of e-commerce?

DTI RESPONSE

60. The UK consistently tops benchmarking surveys into the "friendliest" countries for electronic communications in Europe, from a regulatory perspective in particular. The country has also seen some of the highest growth rates across OECD countries in broadband take-up, and e-commerce levels keep increasing: in December, online Christmas shopping was up 20% compared to 2003. Our regulatory framework, adaptive and forward-looking, has inspired many in Europe, and continues to attract foreign investors.

61. The DTI's 2004 Information Security Breaches Survey[46] found that some 90% of UK businesses now make regular use of e-mail for business and have websites that are mostly transactional. This greater connectivity has brought increased exposure to security issues but the Survey found information security remains a high priority at board level and awareness is on the rise with companies making increasing use of government advice such as that issued by the DTI as part of its Best Practice offering. The Home Office has created an "e-tailing mini-site", which provides information to help both businesses and consumers protect themselves specifically when using the internet. Through the Department of Trade and Industry's Safe Internet Shopping initiative consumers have access to up-to-date information on how to shop online safely. The information is available on the Consumer Direct website at www.consumerdirect.gov.uk, which also provides consumer advice on internet auctions, online scams and rip-offs.

62. DTI is active within the Cabinet Office unit set up to co-ordinate information assurance activity across government, leading on relations with the private sector. 2005 will see a major government/industry initiative (code name "Endurance") aimed at spreading basic security messages to micro-businesses and online shoppers.

63. The recently created DTI anti-spam working group is also involved in a pilot scheme with Germany and Poland to pioneer the investigation of cross-border spam complaints at European level, and the UK initiated the first international agreement in the world, which will allow us and other signatories the US and Australia, to pursue joint investigations of cross-border spam.

TISC QUESTION 12

A witness has suggested that there is little mention of Research and Technology Organisations in recent Government reports but that a Finnish RTO, VTT, has played an important part in giving Finland the top position in the competitiveness rankings. [47]What is the Government doing to raise the profile of knowledge intermediaries in the UK?

DTI RESPONSE

64. In the UK the "Research and Technology Organisations" tend to be sector specific and generally known to those companies in their sector. Government supports a number of activities that contribute to raising the profile of knowledge intermediaries. These range from signposting companies to the appropriate knowledge source via Business Links (www.businesslink.gov.uk) to sponsoring initiatives such as Faraday Partnerships or Knowledge Transfer Partnerships.

65. The Business Support Directory is a searchable database of around 2,500 government and voluntary sector support schemes (including access to support from RTOs) and a facility which allows businesses to register for e-filing with Customs & Excise, Inland Revenue and Companies House in one go.

66. The Manufacturing Advisory Service (MAS) has ten regional centres bringing practical manufacturing advice to businesses. MAS has generated over £86 million of added value with assisted companies, on average, seeing an increase in added value of just over £100,000. SR 2004 announced an expansion of Government support for MAS to develop and build on its achievements. DTI funding will rise to £6 million a year in each region alongside continued RDA match funding. (£34 million in total, split 50:50 between DTI and the RDAs over 2005-08)

67. The Faraday Partnership initiative promotes improved interactions between the UK science, engineering and technology base and industry through the involvement of intermediate organisations, which have strong connections with both industry (particularly SMEs) and with academia. Examples include Research and Technology Organisations (RTOs) or their analogues, universities, government agencies or private sector laboratories, but are not restricted to these organisations. The target to establish, by 2002, a national network of 24 Faraday Partnerships focused on technologies of major importance to the UK, set in the Science and Innovation White Paper, "Excellence and Opportunity—a science and innovation policy for the 21st century", has been met.

68. Knowledge Transfer Networks (KTNs) are part of the Department's Technology Strategy, and provide stakeholders with a focused communication channel to find out about new technologies. They are also a source of credible information and opinion for Government to draw on.

69. Knowledge Transfer Partnerships (KTPs) are a cross government activity, led by DTI, which enable companies to improve their productivity and competitiveness through the knowledge and skills that reside in the UK "knowledge base". Around 900 KTPs are in progress at any one time.

TISC QUESTION 13

What support do RDAs give to collaboration between industry and university that enables industry to exploit the science, engineering and technology base? Has this been effective?

DTI RESPONSE

70. The Innovation Report[48] provides a number of examples of the support given by RDAs to collaboration between industry and universities that enables industry to exploit the science, engineering and technology base.

— For example, East Midlands Development Agency invested £4.5 million in a Systems Engineering Innovation Centre to bring together researchers, engineers and industry to apply this multi-disciplined approach to the development of new products and processes.

— Further examples given in the Innovation Report from around the regions include the London Technology Network, BioCity (Nottingham), an Advanced Manufacturing Park (South Yorkshire) and the five technology-based Centres of Excellence established by the North East to "condition" technologies arising from the regional research base to a point where these technologies can be commercially exploited.

72. RDAs have worked closely with their universities to build effective infrastructures at regional level for knowledge transfer, especially through the application for Higher Education Innovation Funds. Typically this collaboration has resulted in providing improved support to the exploitation process.

73. All regions recognise the importance of exploiting science and technology and each has now established a Science and Industry Council (or equivalent) as a mechanism to draw on the expertise residing in the region within businesses and universities to advise on regional investment in support for knowledge transfer and exploitation.

74. Examples of Investment in Innovation activities made by RDAs

— Fostering/brokering of links between HEIs and SMEs: eg i10—A HEIF-funded forum for regional HEIs to promote and co-ordinate greater and more effective collaboration with SMEs/industry with the most appropriate HEIs (EEDA)

— Funding/Part funding/Match funding of HEI-Business research projects: eg Match funding of HEIF2 awards to all successful bids in the region—£12.5 million (NWDA).

— Investment in collaborative research facilities and programmes: eg Centres of Excellence (major commercialisation programmes linked to universities and high technology companies)—£200 million over five years (ONE Northeast).

75. These investments have only been made in the past two to three years, their full effectiveness has yet to be demonstrated. Monitoring and evaluation of each project will provide a picture of their effectiveness in due course, based on the common indicators agreed between the DTI and RDAs.

TISC QUESTION 14

It has been suggested by the RDAs that their innovation target discourages them from undertaking work to support collaboration between universities and industry. [49]What assessment of the proposal to give RDAs a specific target for building links between industry and universities has been made by the Government?

DTI RESPONSE

76. The DTI Innovation Report, Lambert Report and the 10-year Science and Innovation Investment Framework all recommend an enhanced role for the RDAs in:

— Promoting innovation in its broadest sense through closer engagement of business in science-based R&D and by encouraging increased business expenditure on R&D; supporting improvement in business products, processes and services; more responsive knowledge transfer driven by the needs of the economy; and supply of science, engineering and technology skills responsive to the needs of business and the wider community.

— The decision-making processes within Higher Education Innovation Funding (to become a permanent stream in 2006).

— Supporting the work of the newly formed Technology Strategy Board.

77. In response to these recommendations, the proposal made in the Lambert Report to give RDAs a specific target for building links between industry and universities has now been implemented within the Corporate Plan Tasking Framework for RDAs.

78. In order to strengthen the Innovation content of RDA Corporate Plans, DTI has worked with them to include both Strategic Added Value and direct output targets into their plans, which are to be agreed by March 2005. This has also enabled RDAs to contribute to the development of the DTI's Delivery Plans for Innovation and Knowledge Transfer through closer partnership working.

79. In response to the Lambert Report recommendation, the following new mandatory output target for RDAs has been included:

— "No. of businesses within the region assisted to engage in new collaborations with the UK knowledge base (knowledge base/business collaboration)."

80. RDA Corporate Plans will be agreed by March 2005, and so this target for each region will be monitored from 1 April 2005.

TISC QUESTION 15

The Lambert Review of Business-University Collaboration recommended that the Government should change the criteria by which it provides Regional Selective Assistance support for business, as evidence has shown that in the majority of cases businesses that have been supported are not knowledge intensive. [50]What progress has been made in implementing this recommendation?

DTI RESPONSE

81. The Government response to the Lambert Review was published as part of the Ten Year Investment framework for science and innovation, published in July 2005. [51]Selective Finance for Investment in England, replaced Regional Selective Assistance in April 2004. The new product aims to attract high productivity and high skills investment to the Assisted Areas in England. It is also helping to deliver the RDA Regional Economic Strategies, including facilitating the development of clusters. More generally, high quality, innovative projects rank highly for support.

TISC QUESTION 16

The 1998 White Paper suggested that the retention of skilled workers is a concern for businesses in heavily knowledge and skill-intensive industries. We have also been told that employer's demands for scientists and engineers are still not being met. [52]What is the Government doing to improve this situation? What is Government doing to expand the uptake of training opportunities to enhance the professional and technical skills required in a knowledge driven economy?

DTI RESPONSE

82. The Government's "Science and Innovation Investment Framework 2004-14" aims to make Britain one of the most competitive locations for science, research and development and for innovation; attracting and ensuring the supply of the best scientists to meet this goal.

83. The Government is committed to ensuring that every stage of the education system, from primary schools to universities, can play its part in producing an excellent supply of highly skilled scientists and engineers we need for the economy.

84. A range of Government policies and programmes are seeking to ensure that the demand and supply of science and engineering skills is balanced and that the system produces the skilled technicians that employers in the sector need and value.

85. The Engineering and Technology Board was established two years ago with DTI support, to engage with the wider engineering and technology community to maximise the contribution this group makes to the economy and the UK's competitiveness. The ETB is concerned with making the engineering profession better reflect the needs of employers and those employed across the engineering and technology sectors.

86. The recent GCSE in engineering that had been added to the schools curriculum will also prove beneficial in introducing pupils to engineering and will encourage more people to pursue engineering as a career. Science and Engineering colleges will teach the entire national curriculum, but will in addition encourage pupils with the opportunity to study science and engineering to both A level and University standard. Since launch, in 2002, there are now some 121 science colleges and 14 engineering colleges.

87. The Science Engineering and Technology Network (SETNET) co-ordinates the Science and Engineering Ambassadors Programme (SEAs), which are delivered at the local level by a national chain of SETPoints. There are currently around 6,500 qualified Ambassadors with more coming through daily. The programme will strengthen and expand, within a single quality-assured framework, all those activities that encourage younger people with STEM skills to go back into schools to act as role models, relating the STEM subjects more clearly to the world of work, and encouraging others to follow them.

88. UK government, business and industry have been concerned about the decreasing numbers of students enrolling on Science, Technology, Engineering and Mathematics (STEM) related courses at both Further Education (FE) and Higher Education (HE) levels. The Learning Grid is a series of motor sport-themed educational competitions to promote engineering careers to children and students from Key Stage 1 (Ages five to seven) up to and including, Higher Education level (17 upwards). The programme will be part of the national strategy to increase SET uptake. The Learning Grid will provide the opportunity for a stepladder of progression through an individual's education, providing a platform for a career in engineering.

89. By 2006, Govt will have invested £250 million in the development of a network of 400 Centres of Vocational Excellence (CoVEs). There are currently 290 CoVEs—46 covering engineering (16% of the network). As well as general engineering, these centres cover specialist areas such as marine, aerospace, automotive, rail, agricultural and nuclear engineering.

90. A great deal of work has been done to strengthen Apprenticeships as a progression route into Higher Education. The LSC has commissioned nine Sector Skills Councils including engineering to develop tailored progression routes to HE. This is to identify how best apprentices can be helped to make the transition from vocational to academic learning. Early feedback has been very positive.

91. Science and Learning Centres will provide teachers and technicians with high-quality professional development through access to expert training, advanced ICT, and resources on contemporary scientific developments. Through the science learning centres, we will also be able to support teachers so that they can help develop a scientifically literate population that can make judgements based on a proper understanding of science.

TISC QUESTION 17

A witness has proposed that the uptake of training could be enhanced by reducing the cost to individuals and employers through tax breaks. [53]Is there any evidence that this happens in other countries? What is the DTI doing to encourage other Government departments to agree to such incentives being introduced in the UK?

DTI RESPONSE

Tax credits for training: Is there any evidence that this happens in other countries?

92. The DTI report "Raising Demand for skills—lessons from abroad"[54] examined various overseas models for the support of training through government action.

93. The available evidence suggests that using tax credits as a way of stimulating the uptake of training has had mixed results. For example, according to an OECD report in September 2004[55] generous tax incentives to firms for worker training in the Netherlands have been eliminated due, in part, to a lack of results.

DTI RESPONSE

What is the DTI doing to encourage other Government departments to agree to such incentives being introduced in the UK?

94. DTI has, alongside DfES and HMT, looked at the best means to tackle skills issues in the UK. The Skills Strategy published in July 2003 outlined the importance of a higher skilled more flexible workforce and we are building on this with another White Paper to be published shortly.

95. Whilst tax credits have been considered a number of times we do not believe that they are, at the moment, the right method to incentivise companies to train. There is evidence from the Employer Training Pilots (ETPs) that it is not simply the cost of training that acts as a constraint on the amount of training undertaken, but other aspects such as the flexibility of the way training is delivered and the relevance of the training to the individual and employer.

96. Under the Skills Strategy the Government has been piloting new approaches to subsidised training as an incentive for companies to train. In doing so, we have been focusing predominantly in areas where the market failures could be considered most acute. In particular through the level 2 qualification entitlement and through ETPs. The evidence shows that ETPs are reaching their target markets—including a high proportion of small and medium-sized businesses inthat do not usually participate in qualifications based training.

97. Through the Skills Strategy the Government is also providing targeted support for higher-level skills in priority areas to meet sectoral and regional needs.

98. The DTI supports the "Times—100 Best Companies to Work For" project as a means of promoting best practice in skills and other areas.

99. The DTI is working with DfES to pilot the DTI's benchmarking tool (Benchmark +) as a means of engaging with business on skills by linking training investment to overall business strategy.

TISC QUESTION 18

A witness has told us that one of the main priorities for those who decide the location of a new business is the skills available locally. [56]Is the Government aware of any regional variations in workforce skills in the UK? If so what are the Regional Development Agencies and other Government bodies doing in these areas to improve this situation?

DTI RESPONSE

100. The Government's Skills Strategy highlighted the importance of ensuring that the supply of training better matches regional needs, in order to tackle regional skill disparities. The Skills Strategy announced the introduction of Regional Skills Partnerships (RSPs, coordinated by Regional Development Agencies (RDAs) and bringing together, as core partners, the LSC, JobCentrePlus, the Sector Skills Development Agency, Government Office, SSCs and the Small Business Service. The Partnerships provide a mechanism for determining, region by region, the priorities for economic development and skills. RSPs will play a central role in bringing together national, sectoral and regional skills priorities. By April 2005, each RSP will have published a prospectus setting out the partners' shared vision; what they will do to improve regional skills, enterprise and employment needs; how they will stimulate demand for skills; and how their impact will be measured. Seven out of the nine RSPs are now operational. The effectiveness of RSPs will be reinforced by closer links between RDAs and LSCs. The Government has already committed to consider proposals for further integration of planning and funding of adult skills and workforce development at the regional level.