Memorandum submitted by Universities UK
TREASURY COMMITTEE: INQUIRY INTO REGIONAL
PRODUCTIVITY
INTRODUCTION
1. Universities UK, the representative body
for all universities in the UK, welcomes the opportunity to submit
evidence to the Treasury Inquiry into Regional Productivity.
GENERAL
2. It has long been recognised that higher
education institutions (HEIs) make an important contribution to
local communities and regional development.[66]
3. In recent years, there has been a growing
emphasis on the local and regional role of higher education. Many
studies have demonstrated how universities have a wide-ranging
impact on the economic and cultural dimensions of the region in
which they are based. Moreover, it is evident that universities
often make a significant economic contribution simply by their
existence in a locality. This is reflected in the multiplier effect
which they exert (ie the additional economic activity generated
for every unit of expenditure by the institution).
4. Universities UK estimate the output multiplier
for UK HEIs to be 2.56. Therefore for every £1 million of
HEI output, a further £1.56 million is generated in other
sectors of the economy. The direct impact of HEIs on the regional
economy is to add just over 2% (£1.15 billion) to regional
GDP and just under 2% (30,500 FTE jobs) to regional employment.[67]
5. As major employers, universities have
a significant demand for goods and services which in turn generates
high levels of indirect employment for the region in which they
are based. It has been suggested that expenditure by higher education
staff and students alone is responsible for an extra one per cent
of local employment.[68]
6. Universities attract talented workers
to their regions. Graduates represent a skilled workforce of significant
economic value, many of whom chose to stay in the area where they
graduated.
7. Universities play a key role in the transfer
of knowledge and generating innovative ideas.
8. In many parts of the UK, universities
also form a critical part of the science base. For example, the
eight research active universities in Yorkshire and Humberside
spent over £240 million alone on research and development
in 1999, one of the highest levels in the UK.[69]
9. In summary, universities have diverse
and pervasive impacts. The potential contribution of universities
to a particular region ranges from enabling support through research
and consultancy, facilitating the delivery of skills and access
to technology, supporting active engagement with disadvantaged
communities and lifelong learning, attracting investment and providing
new sources of employment and providing an important cultural
role, contributing to the quality of life in the region in which
they are based.[70]
OUR RESPONSE
TO THE
SPECIFIC QUESTIONS
ASKED IS
AS FOLLOWS
The reasons for the productivity differentials
between regions
10. Universities UK believes that the reasons
for productivity differentials between regions in this country
are rooted in their different economic and social histories, their
demographics and cultural composition.
11. It is, however, indisputable that the
capacity and capability of HE provision in a given region has
both a significant direct and indirect impact on its economic
and social development. The number, size, type and funding of
HE institutions vary dramatically from region to region reflecting
the growth of HE over the centuries and the development of public
policy.
12. The growth of regional productivity
is largely dependent on the region's ability to harness the outputs
of its knowledge base and to develop both the capability and the
capacity for knowledge capital by public investment and the leverage
of private finance. The capacity of Regional Development Agencies
(RDAs) to support business-university collaboration is viewed
by universities as being an extremely important factor in increasing
a region's economic competitiveness.[71]
13. In summary, the economic success of
a region is usually determined by the region's approach to:
— Fostering the formation of strategic
partnerships and knowledge networks. In the North East, the Knowledge
House service provides an interface between industry, the five
universities in the region and the Open University. It provides
a single point of access to the knowledge and resources in the
universities for businesses seeking assistance from academic staff
and works closely with Business Link to facilitate innovation
and knowledge transfer to the companies in the region.
— Recognising and investing in key
generic technologies and capabilities.
— Overcoming the challenges of skills
gaps and nurturing the development of regional labour in the form
of human capital. Each region currently addresses its skills needs
through its Framework for Regional Employment and Skills Action
(FRESA) programme, initiated by the RDA in conjunction with a
core group of regional partners to address skills and employment
needs within the region. Universities are actively involved in
FRESAs and many include measures for dealing with degree level
skill gaps. As key partners in the FRESA process, universities
and colleges are able to maintain awareness of changing workforce
requirements and work with other providers to develop those skills
and make them vocationally relevant.
— Investing in innovation in a planned
and systematic way. The Welsh Assembly launched a three-year innovation
action plan in 2003, which will invest up to £260 million
by 2005. Wales for Innovation includes £30 million to translate
ides and talent from Welsh universities into commercial successes
(including up to £9.3 million towards the Higher Education
Economic Development Fund and £40.5 million for the existing
Knowledge Exploitation Fund).
— Development of market demand by continual
stimulation and growth.
— Investment in strategies for global
research so that a region is enabled to compete in Europe and
world markets by comparison with the best performing regions through
market intelligence and benchmarking. For example, the South East
England Regional Development Agency (SEEDA) has embarked on a
Regional Comparison Benchmark study to rank the South East of
England against top global knowledge-driven economies in the United
States, Asia and Europe, including Ontario (Canada), Baden Wurttemberg
(Germany), Singapore, San Francisco and Los Angeles. The idea
underpinning this strategy is that the region will learn from
best practice around the world in order to fully exploit its substantial
knowledge base. Clearly, the region's universities will play a
central role in this study.
The operation and effectiveness of the various
programmes to address the productivity gap at a regional level
(including the effect to which they may be streamlined and their
effectiveness in changing behaviour towards a more enterprising/aspirational
culture)
14. For many years there has been a significant
gap in funding to bring university research discoveries to a point
where their commercial usefulness can be demonstrated and first
steps taken to secure their utility.
15. Universities UK therefore welcomes the
schemes which have been developed by the OST over the last four
years with the aim of supporting entrepreneurship, training, commercialisation
and the development of links between the universities and business.
16. Such initiatives include University
Challenge (UC), the Science Enterprise Challenge (SEC) and Public
Sector Research Exploitation Fund (PSRE), schemes which have now
been brought together under the Higher Education Innovation Fund
(HEIF). The first University Challenge Competition created 15
seed funds allowing 37 institutions access to investment capital
and supporting 143 projects, with a total value of £60 million
(including the 25% matching funds required from the participants).
It is evident that such programmes have assisted universities
in turning research projects into viable businesses by establishing
seed funds, which assist the successful transformation of good
research into successful business projects.
17. Many universities and collaborative
projects have used University Challenge funding to develop their
entrepreneurial projects and to improve links with businesses
and other HEIs in the region.
18. An excellent example of this is the
White Rose University Consortium, a strategic partnership between
the Universities of Leeds, Sheffield and York, which together
account for 86% of the Yorkshire region's research spend. The
Consortium works with a range of regional and national bodies
such as the regional development agency, Yorkshire Forward, to
drive key initiatives that both benefit the universities and encourage
inward investment into the region.
19. The University Challenge competition
enabled the creation of the £9 million White Rose Technology
Seedcorn Fund (WRTSF) in 1999, designed to plug the funding gap
for fledgling companies looking for early stage venture capital
investment. The Fund was granted £4.5 million from the DTI,
boosted by a total of £1.5 million from the member universities
and £3 million from Yorkshire Forward. The Fund provides
venture capital funding of between £5,000 and £250,000
for each investment and also helps growing companies with management
input, advice and experience. The WRTSF works closely with the
technology transfer offices of the member universities and has
invested 18 spinout companies from a wide range of scientific
disciplines.
20. Universities UK also welcomes the knowledge
transfer partnership scheme (KTP) and hopes that the programme
will be extended through both advertising and funding availability.
As funding comes from many different government sources there
are still some gaps in the scheme, for example, hospitality and
tourism are not yet covered by a KTP sponsoring fund within government.
21. SMART continues to be an excellent programme
and has been very well administered, offering second stage funding
to entrepreneurs as they develop their ideas.
22. Such collaborative funding initiatives,
generally operating on a regional basis across several institutions,
have largely been successful and universities strongly believe
that such funding should continue to be available to enhance sources
of investment capital in the regions.
23. Universities welcome the restatement
of the commitment that HEIF should form the basis of a permanent
third stream of funding (ie for knowledge transfer in addition
to existing funding for teaching and research) and the formation
of the new expanded Higher Education Innovation Fund (HEIF 2)
which will provide £187 million over 2004-05 and 2005-06.
24. Universities UK also endorses the Fund's
encouragement of collaborative bids involving other Higher Education
Institutions and Public Sector Research Establishments. It is
evident that collaboration between higher education institutions,
often formed on a regional basis, can have a significant impact
on the region's economic development and provides stimulus to
entrepreneurial activities in the region concerned, as well as
in the university sector as a whole.
25. Universities believe that HEIF 2 is
crucial to the development of universities' capability to continue
their business collaboration. Initial indications of the recently
submitted bids suggest a significant increase in collaborative
programmes and far more creativity and willingness to take risks
in bridging the gap between universities and the business community.
26. Whilst welcoming government schemes
to support innovation, universities remain aware that there are
still funding gaps at the pre-proof of concept and sometimes at
post-proof of concept stage in innovative projects. Such gaps
may stifle projects prior to them coming of age as spinouts. These
gaps need to be addressed through further proof of concept related
initiatives providing funding to applied research/ development
with good commercial potential. By feeding the nascent technology
chain in order to stimulate continual spinout and technology transfer
from universities, innovation and regional productivity will be
better assisted. Although a proof of concept fund is shortly to
be developed for many of the universities in the South East, this
is viewed by the sector as an important missing link that requires
to be addressed in all regions across the UK.
27. It is evident that additional funding
would also be helpful in enabling universities undertake more
outreach activities on the basis of full economic cost recovery
rather than, as is often the case, at a loss. This would encourage
universities to engage more with local industry in activities
benefiting regional productivity through innovation, technology
transfer and skills transfer.
28. Universities UK supports the introduction
of new initiatives to assist universities in increasing the sustainability
of spinout projects, many of which do not survive in the longer
term. Universities are already working together to develop shared
services and knowledge in relation to spinout creation and the
development agencies often play a key role in enabling and funding
initiatives of this kind. For example, Advantage West Midlands
enabled the formation of the Mercia Spinner project led by the
Universities of Warwick and Birmingham with aim of providing shared
spinout services for the universities in the region.
29. It was considered that the general regulatory
burden of many publicly funded schemes often renders them less
attractive and useful to industry and HEIs alike, leading to a
management overhead which sometimes lessens their impact. Universities
believe that all such schemes should connect with overall business
plans rather than be "stand alone" additions. Universities
believe that future post-Lambert funding should be disseminated
direct to HEIs on the basis of their HEIF performance and on a
"light touch" regulatory basis.
The contribution of: measures under the Lisbon
Agenda (including the relative effectiveness in this area of "horizontal"
measures applying across all regions and vertical measures targeted
at specific regions); "clusters" as a route to greater
regional development; the Regional Development Agencies
LISBON AGENDA
30. The Lisbon Agenda aims to make the EU's
economy "the most competitive and dynamic knowledge-based
economy in the world, capable of sustainable economic growth with
more and better jobs and greater social cohesion". UK universities
have a key role to play in this agenda, but in order to do so
successfully the government must invest further in higher education
and R&D.
31. Universities believe it is imperative
that extra public funds be invested in higher education and R&D
on a national, regional and local level if UK is to be at the
forefront of the European higher education sector. Failure to
do so will mean that UK universities fall behind the rest of Europe
and this will have a critical impact on economic productivity
on both a national and regional level.
REGIONAL DEVELOPMENT
AGENCIES (RDAS)
32. Although relatively young institutions,
RDAs have already made an important contribution to the development
of regional productivity. Many universities feel that they have
developed a positive working relationship with RDAs and have worked
with them in the development of effective third stream activities.
This has led to the building and development of enterprise hubs
and gateways, often linked to innovation and productivity gains.
33. In his report on business-university
collaboration, Lambert recognises that as business-led publicly
funded organisations, RDAs are uniquely well placed to act as
a bridge between business and universities. Whilst it is evident
that the level of support and resources invested varies significantly
from region to region, this key principle has underpinned many
of the economic strategies of development agencies.[72]
34. However, whilst recognising the important
role that RDAs can play in co-ordinating and promoting business
development in their regions, universities remain concerned about
Lambert's recommendation that the delivery of RDA objectives might
be better facilitated by direct regional control of a portion
of the research funding. Such funding is currently distributed
according to national quality benchmarks and assessments.
35. Whilst welcoming Lambert's proposal
for a new funding stream for university-business research collaboration,
universities believe that many RDAs do not yet have the expertise
or the capacity to allocate research funding.
36. It is clear that if development agencies
are to take on this role they need time to develop the necessary
systems and know how and need to link with other research funding
bodies.
37. Moreover, Universities UK recognises
that many institutions are often competing in their research activity
with institutions outside the UK rather than with other regions
in the UK. The most appropriate collaborative partner for a particular
business may lie outside the region and this may rule out access
to the collaborative funding stream for universities who chose
to carry out inter-institutional research on a national level.[73]
38. There are also time and cost implications
of funding being distributed through RDAs. Universities find that
the process to secure funding through RDAs is time-consuming and
expensive. Any method for distribution of this funding needs to
ensure that it can be distributed quickly enough to grasp opportunities,
which often disappear. Universities UK therefore advises further
consideration of RDAs role in brokering this.[74]
39. Universities have also expressed the
concern that if RDAs are to be responsible for distributing this
funding stream, they would be likely to allocate funding in areas
which feature in their strategies. This not only has the potential
to alter what universities do, it may result in collaborative
research in the same areas in each region (for example, energy,
life sciences and nano-technology) and create a sense of "toxic
regionalism" in England where regions are often competing
with each other for the same things. As national and international
organisations, universities need to stand back from this agenda.[75]
40. If the Government accepts Richard Lambert's
proposal for a separate stream of research funding for collaborative
research between universities and business, Universities UK believes
that this new funding stream should be distributed through the
funding councils via an extension of HEIF. The existing model
of the allocation of funding for Knowledge Transfer Partnerships
may also offer some useful lessons.
41. In summary, universities believe that
an appropriate role for RDAs remains in facilitating more effective
links between business and universities by linking companies into
the research base and stimulating the demand side.[76]
In doing so, RDAs can continue to play a key role in encouraging
innovation and increasing the economic prosperity of their region.
CLUSTERS
42. Many regions have dynamic clusters that
provide a source of competitive advantage to firms and that promote
economic growth. Universities are often at the heart of these
groupings, providing research and skills to support business and
innovation, with a ready supply of skilled graduates. The importance
of clusters to economic development has long been recognised.[77]
43. As Lambert has stressed, it is clear
that proximity matters, especially in the case of small to medium
enterprises (SMEs), that do not have the time, knowledge or resources
to identify relevant research expertise a long way from home.
In terms of business-university links, proximity is clearly important
to firms of all sizes. Lambert finds that firms with local markets
chose to work with a local university in almost 90% of their collaborations.
Firms with regional or national markets chose to collaborate with
local universities between a third and a half of the time. Even
companies with international markets work with their local universities
in a quarter of their collaborations.[78]
44. It is evident, however, that internationally
significant knowledge-intensive clusters are concentrated in a
few regions of the UK. The East of England and the South East
have by far the most knowledge-intensive clusters, benefiting
from the highest R&D activity and the closest university links.
The Cambridge phenomenon is an excellent example of this, where
it is reported that all of the new high-technology firms are at
least indirectly related to the university.[79]
45. It is indisputable that whilst there
are many research-rich universities in the UK, only very few research-intensive
universities have been able to develop successful business clusters.
Lambert suggests that if universities outside the East and South
East of England are able to succeed in doing so, they need to
be actively supported in their efforts at local and regional level.
46. As HEPI has pointed out, whilst the
economic significance of clusters is undisputed, the impact of
such developments on the economic performance of the region in
which they are based is not always evident.
47. Often, the "region" in which
the cluster is based is very loosely termed. For example, the
region affected by the Cambridge IT and biotechnology cluster
is the area around the city, not the East of England. Conversely,
many clusters exist, such as European textiles, which link regions
that spread across national boundaries.[80]
48. Locally based "clusters" involving
HEIs clearly have a significant economic impact on their local
area, however, their impact on the economic development of the
region as a whole is not as easily defined. This must be borne
in mind when considering policy development.
49. Whilst it is hoped that the development
of city level clusters would benefit the wider region, Universities
UK believes that RDAs should carefully consider the structure,
scale and mission of the clusters in which they invest and the
economic impact on the region and the nation as a whole.
CONCLUSIONS
50. There have been a number of government
initiatives in the last few years, such as University Challenge,
Business Link and the HEIF programmes, which have supported universities'
efforts to increase their collaborative links with business. The
confirmation last year that third stream funding would be formula
funded after HEIF 2 will help to consolidate the position.
51. As Lambert acknowledges, whilst individual
government schemes to promote knowledge transfer have been welcomed
by business, the number of schemes available has caused some confusion.
Recently Business Link has emerged as the main branded business
service to SMEs.
52. Universities UK believes that the regional
productivity gap is still essentially driven by lack of innovation,
which itself results from insufficient business investment in
R&D as both the Lambert Report and DTI Innovation Review have
shown. Universities are well placed to provide the innovative
spark that companies often need to generate their own additional
programmes.
53. Universities recognise the need to work
together on a regional basis to address barriers to industry in
accessing university support, for example when considering new
product development, production processes, and overall improvements
in business performance. Printed promotional material and a website
containing the range of regional university capabilities by industry
sector, are among delivery mechanisms identified by North East
universities that should form a key part of a regional communication
strategy targeted at industry and business support agencies.
54. Although universities are still relatively
new in the development process of business collaboration and building
both contracts and reputation, recent studies show quite dramatically
that companies associated with universities have a significantly
higher probability of developing new innovative products and services.
So the linkage between business and universities is proceeding
in the right direction and if it continues at the same level of
acceleration then we have room for cautious optimism.
55. Universities remain convinced that the
greatest impact on regional productivity would be achieved by
achieving greater levels of graduate recruitment and retention
in the region. Graduates have three skills sets that are essential
to regional productivity: employability, enterprise and engagement.
These skills sets should be nurtured in the region and reflected
in regional strategic policy and operational processes.
56. Many sectors of industry and business
remain relatively low graduate recruiters and this is especially
evident in the case of SMEs. Universities UK endorses the development
of graduate recruitment programmes, such as those developed by
Learning and Skills Councils and Business Links, and recognises
their significant contribution to improving rates of graduate
recruitment. It is hoped that the government and industry will
continue to work towards achieving higher levels of graduate recruitment
which will have a significant impact on economic productivity
throughout the regions of the UK.
57. In turn, universities accept that regions
need to raise their horizons and increase the aspirations of those
who live and work in the region. A clear and coherent vision,
targeted resources, prioritisation and diversification must form
the effective action agenda in which strategic partnerships are
created and developed.
21 May 2004
66 National Committee of Inquiry into Higher Education,
1997. Back
67
The Impact of Higher Education Institutes on the UK Economy,
2002 (Universities UK). Back
68
Universities and Communities, 1994 (Goddard, J). Back
69
Lambert Review of Business-University Collaboration: Final
Report, December 2003 at p 65. Back
70
National Committee of Enquiry into Higher Education, 1997. Back
71
Lambert Review of Business-University Collaboration: Final
Report, December 2003. Back
72
Lambert Review of Business-University Collaboration: Final
Report, December 2003. Back
73
UUK response to Science and innovation review: working towards
a ten year framework, March 2004 (DfES/ DTI/ HMT). Back
74
UUK response to Lambert Review of Business-University Collaboration:
Final Report, December 2003. Back
75
Ibid. Back
76
Ibid. Back
77
Our Competitive Future, 1998 (DTI) and Opportunity for
All, 2001 (DFEE, DTI) as cited in the Lambert Review, 2003
at p 70. Back
78
Evidence from the Community Innovation Survey (CIS). Back
79
Lambert Review of Business-University Collaboration: Final
Report, December 2003. Back
80
HEPI Report Summary 9: Research and Regions: An overview of
the Distribution of Research in UK Regions, Regional Research
Capacity and Links, March 2004. Back
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