Examination of Witnesses (Questions 480-499)
14 SEPTEMBER 2004
MR RICHARD
LAMBERT, PROFESSOR
PATRICK DOWLING
AND MR
PETER REID
Q480 Norman Lamb: You say "for a
while", could clarification from the Inland Revenue have
been a way of sorting out the problem?
Professor Dowling: They have negotiated
a safe harbour which defers the PAYE tax payment until the shares
are sold, but that is still a disincentive for the academic because
it only deals with preference shares and it is still PAYE. What
we think is that we should have a block exemption for universities
from schedule 22, which was actually designed to stop smart city
firms helping their employees avoid tax, and an unequivocal rule
that shares in university spin-outs would be taxed on a capital
gains regime.
Q481 Norman Lamb: You have come prepared
for this question, have you not!
Professor Dowling: I thought somebody
might just ask it.
Q482 Norman Lamb: Was it a cock-up and
they had not realised?
Professor Dowling: It was unintended
consequences, exactly. It just stopped them stone dead in their
tracks; it stopped U-UK stone dead in its tracks. We are working,
as I understand it, with the appropriate authorities to try and
get a solution to it, but at the present moment it is a total
disincentive.
Q483 Norman Lamb: Do the other two of
you agree with that analysis?
Mr Reid: It clearly is impeding
spin-out activity from many universities who are advising academics
not to proceed given the dangers they face, and I think that advice
is sound. If schedule 22 was not there, there would still be fewer
spin-outs now than there were two years ago, but I think this
schedule is impeding some good spin-outs from happening.
Q484 Norman Lamb: Richard Lambert, did
your review identify any changes to the tax system which could
help encourage facilitate business and university collaboration?
Mr Lambert: No, it did not, and
I did not, to be honest, go out looking to replicate other work
which had been done on that.
Q485 Norman Lamb: Not because you did
not think it was that significant an issue but more to do with
the culture and getting the culture right?
Mr Lambert: That is my strong
belief.
Q486 Norman Lamb: There is a danger you
could tinker with the tax system and not make any great difference.
Mr Lambert: That is what I felt,
yes. I thought it was important that the R&D tax credit should
be made clearer and it should be well understood it applied to
operating in collaboration with universities, which I do not think
was universally understood. I do not know whether the changes
which have been made have achieved that, but otherwise I felt
I was looking at culture and cultural change rather than fiscal
incentives.
Mr Reid: Could I just comment?
I said there would be fewer spin-outs now anyway, but I have to
be clear, I think universities have to be much more focused on
the quality of spin-outs. I think there would be fewer failures
of spin-outs if schedule 22 was fixed and more successes.
Q487 Norman Lamb: Okay. You have already
been fairly dismissive, and I am not criticising you for that,
of the Fraunhofer concept, or that you think its time has passed,
but at those institutes in Germany academics can leave to start
up a spin-out company with a guarantee their contract will be
reinstated if the spin-out business fails. Are there any lessons
to be learnt at all from that in terms of removing some of
the risk involved in going into an entrepreneurial activity?
Professor Dowling: I see a lot
of advantages in doing that. We second people into businesses
and often people leave to start their own business and they have
no guarantee there will be a place waiting for them when they
come back. So I could see that would be an encouragement. As I
understood it, the Faraday Institutes were based very much on
the Fraunhofer model, and in my knowledge of them, which is limited
to one or two of them, I understood them to be quite successful.
So I think the Faraday initiative was a good one. I also think
the Smart Award was a very good initiative.
Q488 Norman Lamb: How successful has
the R&D tax credit been in encouraging collaboration between
universities and businesses? Or is this another example of something
which looks good but does not necessarily have much impact? Has
the impact been measured, so far as you are aware?
Mr Lambert: I think it has now
been measured. Did we not get numbers in the budget this year?
I am sorry I am a bit vague, it was after my report was completed.
Q489 Norman Lamb: Do any of you have
any views about the R&D tax credit and its value in encouraging
university-business collaboration?
Professor Dowling: Potentially
it is very much an advantage, but I have not had too much evidence
of it personally.
Mr Lambert: I think the big idea
of the R&D tax credit was really for large companies, to encourage
them to stay in this country, because ahead of the introduction
of it we rated rather poorly against other nations in Europe on
our tax allowances. We now rate rather well. I think it was primarily
aimed at big business, that is my impression.
Mr Reid: There clearly is an issue
on what can be done to stimulate business demand for innovation,
wherever that innovation comes from, whether it is internally
generated, whether it is in another company or whether it is university
based. So the question is not, "Does the R&D tax credit
help big businesses or universities?", one hopes it does,
but does it encourage the two to innovate generally. I do not
know the answer but one would hope so.
Q490 Norman Lamb: Two quick follow up
questions. Does your networking which you described earlier necessarily
always have to be publicly funded? It seems to me that you are
providing a service to business and some businesses are making
good money out of what you are providing to them.
Mr Reid: That is a good question.
We will be charging some businesses for some of the services we
offer in the future. There are several dilemmas there. The first
is that small businesses typically find it hard to pay. The basis
for asking big companies to pay is that if we help them on two
or three projects, they do not have to pay beyond that, so they
understand the value before they are asked to pay. The second
thing is, what you measure is what you get. If we are measured
by how much money we raise, we become a commercial consulting
organisation, which means we would stop helping a lot of the transactions
between universities where we cannot charge. I can give some examples.
For example, a chief executive joined a departmental board and
no money changed hands between anyone but everyone was happy and
there was huge value created. So for those things where we provide
private good for large companies, we should be charging them and
will be. I think there is public good in helping universities
and businesses work closer together, and if you charge for that,
people start not wanting to do it through you or not wanting to
do it at all.
Q491 Norman Lamb: This inquiry is all
about how you address problems of differences in regional productivity
and how you can get some of the poorer performing regions performing
better. It has been a very interesting session and we have learned
quite a lot, but it seems to me none of you are actually really
saying that university-business collaboration and the Government
role in that in helping to fund it really has any role in stimulating
improvements in productivity in poor performing regions.
Mr Reid: No, I disagree.
Professor Dowling: No.
Mr Reid: Businesses need access
to expert advice and assistance. They need help in their innovation
process. Should businesses in poorer regions of Britain be assisted
in getting access to real innovation support? Yes. The only question
is, if that is research based, does that research need to be very
close to them? The answer is, I do not think it does, but they
need at least as much help to innovate their businesses, develop
new products, new processes, new services, as anyone else.
Q492 Norman Lamb: So the work goes into
facilitating the link with those businesses in those regions rather
than siting research close to them in those regions?
Mr Reid: I would say so, yes.
Professor Dowling: The one thing
which has happened which has put us ahead of the pack here in
the United Kingdom is that we have three important ministries
actually working together and committed to a common vision. So
when the Chancellor announced the Treasury was going to increase
the funding for science and technology in this country, and we
already have a committed Department of Trade & Industry and
OST and DfES, that was the first real bit of joined-up thinking
on this issue we have had, and we are still ahead of the pack
in the rest of Europe.
Q493 Norman Lamb: When you say "ahead
of the pack", I am not disputing it, on what basis do you
determine we are ahead?
Mr Lambert: There is data. OECD
has got it, which I can send you a note of, if that would be helpful,
which compares our success in knowledge transfer with other European
countries, and we do stand up well.
Q494 Chairman: Could I gallop through
a few questions which are important to us in our inquiry? Richard
Lambert, what were the main barriers identified in your review
to universities commercialising their intellectual property?
Mr Lambert: Too many lawyers.
This is something we are now working on, which is the last leg
of the project. There is uncertainty about ownership of intellectual
property and there is endless room for debate about who owns what,
especially if it is something which has been developed over time
by a series of researchers. Universities tend to over-value their
intellectual property, or there is a tendency for them to say
it is worth more than the business thinks it is. To put it another
way, universities think businesses are ripping them off, and businesses
think universities are over-valuing their intellectual property.
The result of that is that some arrangements which would make
sense do not go ahead because people cannot agree on the ownership.
So what we are working on now, and there is a group of people
doing this, is to see if we cannot come up with some voluntary
standard contracts which would meet a range of different circumstances,
which people could pull off the shelf and say, "Does this
suit what we are now on? If it does, we will use it." It
is entirely voluntary but it is intended to make it easier, particularly
for those universities which do not have much contact with the
business community, to move forward.
Professor Dowling: It is often
because the universities under-estimate exactly the point Nigel
Beard was mentioning. They have the idea they can be given a load
of money for development costs, so it is really educating the
universities as well as industry to know what value each of them
is contributing. That is a slow process but we are getting there.
Q495 Chairman: Richard, do you want to
add anything to the point about the main features of your IP protocol
recommended by your review and how you believe this will encourage
more collaboration and remove barriers to exploitation?
Mr Lambert: I have to say that
that idea has not been greeted with great enthusiasm by the business
community, so it is not really moving.
Q496 Chairman: You do not agree with
it?
Professor Dowling: There is no
fixed solution.
Q497 Chairman: You are on your own!
Mr Lambert: I am afraid I am,
yes.
Q498 Chairman: Skills and graduate entrepreneurship.
How can we ensure that universities are producing graduates with
skills appropriate for both national and local needs? How can
we improve the ability of businesses to influence curricular and
course design?
Professor Dowling: By engaging
the industry in the design of some of the curricula, particularly
on work-based, vocational-type degrees, which most universities
do, I have to tell you. Also the most valuable thing I have found
in my own personal experience is placing students in jobs for
one year or six months, or whatever, in their third year. It makes
them highly employable. They come back totally different people
in the fourth year. They know which way is up, they can read a
balance sheet, they know what life is about. But you need to persuade
industry that is worth doing.
Q499 Chairman: How engaged have universities
been in the Frameworks for Regional Employment and Skills Action
which have been developed by the regional development agencies?
Have the Sector Skills Councils had any impact on university courses
to date? If not, what mechanisms do we need?
Professor Dowling: We are all
aware of FRESA and universities generally work closely with the
regional development agencies on that programme. The Sector Skills
Councils are relatively new into the field and their impact in
some areas is profound and in other areas is not yet visible.
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