Examination of Witnesses (Questions 20-39)
SIR BRIAN
BENDER KCB, MS
CATHERINE BELL,
MR DAVID
EVANS, MS
JOAN MACNAUGHTON
AND MR
MARK GIBSON
25 OCTOBER 2005
Q20 Mr Hoyle: Just on that point,
Chairman, if tax credits are the key to R&D, is the take-up
a north/south divide or is it even across the country?
Mr Gibson: I do not know the answer
to the question.
Q21 Mr Hoyle: That is fair enough.
Mr Gibson: In terms of whether
R&D Tax Credits have had a greater take-up in the South East
compared to other parts of the country, my guess would be that
they probably have had a higher take-up in the South East because
that is where a lot of R&D intensive companies operate.
Mr Hoyle: Maybe you could let us have
a note on that.
Q22 Mark Hunter: I would like Sir
Brian to indulge me with this question for a moment or two as
a new Member of the Select Committee, so I apologise in advance
if I have misunderstood this. It is on the subject of R&D
where I think you have confirmed, and it does say in the report,
the aim is to raise R&D investment from 1.9 to 2.5% of GDP
by 2014. A little earlier in the report, in the section on page
three, transferring knowledge, you talk about the strategy document
indicating that in 2001 UK companies spent 1.3% of GDP on R&D.
Is that suggesting that we have increased since 2001 from 1.3
to 1.9%, in which case the target of 2.5% by 2014 does not seem
terribly ambitious, or am I mixing up two entirely separate things
here?
Sir Brian Bender: I will ask Mr
Evans to answer your question directly, but I can assure you the
2.5% target is ambitious because there are statistical differences
in the two figures.
Q23 Mark Hunter: My point about ambitious
was if we have moved from 1.3 to 1.9% in that time it does not
seem a huge leap forward by 2014.
Mr Evans: If I heard your question
correctly, and I am afraid I have not been able to find the quote
in the report, it is important to distinguish between the contribution
of business and the contribution of Government and then the totality,
which is the sum of both. The figures that Brian has quoted are
for the total proportions of both Government and business. I think
the 1.3% was business.
Sir Brian Bender: In any of the
supplementary material we are happy to clarify that.
Q24 Mr Clapham: Just taking the figure
that Mr Evans referred to, we see that there has been an increase
in the investment of private companies between 2001 and the present
time. I think the figures that you used were up from 1.3 to 1.9%
with an aspiration to reach 2.5%. Are we matching our competitors?
The Germans were better in 2001 and so were the Americans. Is
the figure that we have set for the future going to increase competitiveness
and match our main competitors?
Sir Brian Bender: We are not matching
the Americas and Asia Pacific region and that is the biggest worry.
I am not sure if any of my colleagues can answer the position
on the rest of the other European countries on this. Again, we
can provide more material. The fundamental issue is that we are
not doing well enough in this area in relation to the R&D
intensive parts of the world and the growth areas of the world,
in particular North America and South Korea was the other part
in yesterday's publication that was moving on rapidly. We have
to do better than that. What the position is in the rest of Europe
I do not have the data but we can provide that afterwards.
Q25 Mr Clapham: Do you feel there
is anything more that we could do to cajole the private sector?
Sir Brian Bender: We have a series
of measures and I outlined some of them earlier. As I said, we
are evaluating the tax credits and what that is doing. There is
an issue on the access of small businesses to publicly funded
R&D contracts which up until very recently was on a voluntary
basis, but Barry Gardiner said in a speech yesterday that was
not working and it is now on a mandatory basis. The Technology
Strategy and the Technology Strategy Board is putting £370
million of Government money to fund collaborative R&D projects
and knowledge transfer networks. There is a lot we are doing on
it. There is also a regionally delivered business support grant
for investigating an innovative idea and a grant for R&D.
There are a lot of activities. I am sure that in the next few
months in preparation for the next Spending Review we will want
to evaluate what is being achieved by those and, therefore, what
ought to be done differently or just carried on in the context
of the next spending period. I think one of the biggest challenges
facing the country and the Department is how we can get those
figures moving in the right direction to make sure that British
business is moving upmarket towards innovation and knowledge economy
as a way of responding to the globalisation challenge.
Q26 Mr Clapham: Just one last point,
Chairman. This Committee has looked time and time again at this
issue of transference of knowledge, and in particular we were
looking at what the Germans were doing some years ago and we seemed
to be behind. Have we looked at what our competitors are doing
and taking notice of that, using examples of what is happening?
Mr Gibson: The answer is yes,
the Germans are extremely good at it. Going back over 20/30/40
years they have had institutes called Fraunhofer Institutes. They
are good at knowledge transfer between the R&D base in both
companies and universities and between companies. One of the new
business support products that we devised three or four years
ago was in terms of trying to promote knowledge transfer networks
across this country because essentially we are a small island
off the north-west coast of Europe, we are facing increasing challenges
from all over the world, Asia and India, and we have to collaborate
better to try and compete. One good example is in the composites
area which is a key technology for aircraft in the future. The
new Airbus plane will have composite wings, the new Boeing Dreamliner
has composite wings. In this country we have a number of universities,
research institutes and companies which are individually working
in this area. About 12 or 18 months ago the Government announced
the establishment of a new network in composites, which attracted
for GKN on the Isle of Wight some new investment that could potentially
have gone to the United States. Yes, we do see it as an incredibly
important area.
Q27 Mr Clapham: You are optimistic
that the knowledge networks are going to produce?
Mr Gibson: I hope they will, yes,
but, as Sir Brian has said, we have got a long way to go in this
area.
Chairman: This is an important area for
the Committee, we will return to it time and time again as we
have in the past. There are two more colleagues who want to come
in on the R&D question before we move on to the next set of
questions.
Q28 Mrs Curtis-Thomas: The link between
R&D and productivity is undisputed but I would be very interested
to know whether or not you have looked at specific sectors to
see how R&D has influenced productivity within those sectors.
My guess is that we have seen an improvement in productivity in
specific sectors as a result of R&D investment and the question
should be whether or not we should target them for more in an
attempt to get more and whether or not other sectors are less
responsive, in which case what are the structural reasons for
that?
Sir Brian Bender: As you know
by asking the question, there is a very complicated set of answers
to it. Are we looking at it? Do we look at it? Yes. There are
some sectors that are inherently more R&D intensive than others
and, therefore, some of the data on private sector investment
can be distorted by that. Sectors that are intensive include aerospace,
pharmaceuticals and IT. An economy that has more of those businesses
that are performing well will be more R&D intensive. There
was a study published a couple of weeks ago that talked about
application of IT within a company affecting productivity, so
those companies that are themselves applying IT effectively
are more productive. There is a rather long answer to the impacts
on productivity of different factors. There is something published
today by one of the Sector Skills Councils that looks at productivity
across different sectors of the economy and compares and contrasts.
Analysing this is a continuing part of the Department's work in
liaison with the Treasury. I do not know if there is more that
Mark wants to say about that.
Mr Gibson: It is an extremely
good question and you are entirely right that some sectors are
much more R&D intensive, such as aerospace and pharmaceuticals
in which the UK is strong. We have the second largest aerospace
industry in the world and our pharmaceutical industry continues
to be extremely healthy in this country. R&D is only one factor,
capital expenditure is another factor, management skills, training
and so on. I would say it is difficult to disentangle R&D
as one specific factor in the productivity equation. All I can
say is that where we have looked sectorally, where we have had
what we term innovation and growth teams looking on a sectoral
basis, certainly the business view is that future investment in
R&D is critical to long-term competitiveness and it is a view
we share.
Q29 Mrs Curtis-Thomas: If we are
making good progress in specific sectors, which I know we are,
are you focusing on those sectors? Construction is one that is
at the front of my mind where R&D investment is crucial in
terms of improving the construction sector but take-up is very
low. What specific intentions have you got with R&D investment
in those construction sectors to try to improve their productivity?
Mr Gibson: We have a Technology
Strategy which covers all sectors. We have consciously moved away
from our specific sector based R&D support towards a more
broad, across the board Technology Strategy. All sectors are eligible
for the various elements of support under that strategy, and construction
is one of them. I would agree with you that R&D in the construction
sector is perhaps less important than, say, aerospace, but it
is still a key element in maintaining the competitiveness of the
UK construction sector in the long run.
Sir Brian Bender: Can I just supplement
that. There was another point I might have made earlier, which
was the link between innovation and public procurement. If one
looks at the construction sector and looks at what is going to
be happening in the southern part of the country over the next
10 years with the Olympics, with the Sustainable Communities
Programme and other things, there are interesting questions about
the readiness of the construction industry to supply that,
the opportunities for British business to do it and the innovation
that will be necessary if we are indeed to have an Olympic site
that meets all the tests that ministers have put. We will be working
with our knowledge of the sector with what I call the procuring
departments—ODPM, DCMS and others and the Office of Government
Commerce—to try to bring all of that to bear so that British
business is able to take up the opportunities of what will be
a very demanding construction programme if you put all the pieces
together.
Q30 Rob Marris: Some innovation and
development is undesirable: the armaments industry devises better
ways of killing people which we then export. When you are giving
us additional figures on private sector R&D can you give us
a military and non-military breakdown, please?
Sir Brian Bender: We will see
what we can produce on that.
Chairman: That was a very short question;
a very big one but a very short one.
Q31 Mr Weir: This really follows
on from the discussion on R&D. Previously the Department had
about 170 schemes for business support which have now been reduced
to nine. Looking at the list of nine, of these more than half
fall under the general heading "succeeding through innovation"
and of these the majority are bringing together academia and research.
How satisfied are you with the nine new schemes? Given that most
of them fall under this one heading, do they seem to be meeting
the needs of all business?
Mr Gibson: You are entirely right
in your analysis of our new schemes and it was a very conscious
choice that the Department made in terms of putting more of our
quantum of resource for business support towards innovation than,
say, trying to promote best practice in companies. Previously
we spent about £60 million on a whole range of best practice
schemes and in round numbers we now spend about £10 million
and we spend more supporting the areas you mentioned, like collaborative
R&D. That was a view that we reached after analysis of what
we did previously and our view that in the long run innovation
is the area we want to support. It was a very conscious decision
we made.
Q32 Mr Weir: I appreciate that, but
what feedback do you get from business as to whether this is meeting
their needs? I am thinking of one in my constituency that had
a very innovative product but was finding great difficulty getting
help with an export issue. They had a foreign customer and had
to put in place guarantees on finance which they had great difficulty
in putting together. Is that an area which you have looked at?
Mr Gibson: We do seek feedback
on all our business support products. We do regular surveys of
business. We measure a whole range of indicators: for example,
the additional work that has gone on inside the company as a result
of the grant, customer satisfaction, how long it takes us to give
the support. Whereas we did not in the past, we now have pretty
good performance data on our new business support products. It
is difficult to comment in isolation on a particular case but
if there are particular instances where we do not satisfy particular
companies we are always keen to hear about them because we are
always keen to try and improve our performance.
Sir Brian Bender: The main feedback
I have heard from business in my limited time in the Department—including
particular conversations with the British Chambers of Commerce
last week—is around what they still see as a confusing plethora
of Government schemes in the regions. The DTI did a simplification.
I have not heard negative feedback on that in my limited time
in the Department. The sort of feedback I have had is, "now
go on and finish the task looking across the country at the confusing
picture of schemes and different providers in the regions".
That is something that the Small Business Service is taking the
lead on and looking at in the Department and across Government,
because these are not specifically DTI schemes but Government
or public schemes.
Q33 Mr Weir: I just wonder if there
is any feeling that schemes are unusually concentrating on a specific
sector rather than across business as a whole in the UK.
Mr Gibson: The answer to that
is no, they are open to businesses in any sector. We are rather
careful about not trying to pick winners in particular sectors
on the grounds that there are tremendously innovative companies
in all sectors of the UK. There are no sectoral limitations on
any of these schemes.
Q34 Mr Weir: Do you feel that the
concentrated scheme is more efficient and effective than the previous
number of schemes?
Mr Gibson: I do think that, yes.
We have pretty good measurement systems in place to try and judge
that over the next few years. It was a heck of an exercise in
the Department to move from well over 100 of these schemes down
to less than 10. We have a programme of all the legacy schemes
with the expenditure which is declining over the next two or three
years to zero.
Q35 Mrs Miller: Improving government
efficiency is clearly a key focus at the moment and I was wondering
whether you feel you are on track to achieve the sorts of savings
required in the Comprehensive Spending Review in 2006-07 of £35
million and in 2007-08 £45 million?
Sir Brian Bender: We are on track.
The total across the whole Spending Review period as part of our
requirement is just under £390 million. Up to now I believe
we are on track. Again, Mr Evans can say a little bit more on
this. Perhaps I could just take this opportunity of trying to
nail a myth about headcount reductions. Headcount reductions are
really important but they are only a small part of the story.
For our target—and the headcount reductions in DTI are significant—the
savings only account for about 10% of the total efficiency target.
While it is really important to make sure we do not employ more
staff than we really need to do the job and we do bring the numbers
down, some of the media coverage has implied that efficiency is
entirely about reducing staff numbers. It is about that but it
is about a lot more than that. It is about ways of working, use
of technology and, in the DTI's case, it has also been about using
the accommodation more flexibly. I think we are the leader in
Whitehall in moving to what business I suppose would call hot
desking, applying eight workplaces for 10 members of staff and
getting down to between two and three buildings, a 30% reduction
in the London estate. Would you like Mr Evans to say any more
about how on track we are?
Q36 Mrs Miller: Yes, please.
Mr Evans: We are indeed on track
in our measuring system. If you look at the Department's Efficiency
Technical Note, the thing we published last autumn which explains
in detail how this figure of £389 million is set out, we
have a tracking system which we track quarter by quarter of the
kind of progress which we have made. Not absolutely everything
is as one predicted, there is an element of some things moving
forward a bit faster and some things moving forward a bit slower.
The most recent measurement we have done at the end of Q2 shows
us on track for where we thought we were going to be in aggregate.
Another example which I could give where we are already ahead
is in the Spending Review we committed to taking 85 jobs out of
London during the next three years, moving them out into the regions,
but we have already moved 194 jobs out of London. There are examples
where things have gone faster, there are other examples where
for data reasons or other reasons they are not as fast. When you
add it up across the whole totality we are on track.
Q37 Mrs Miller: At the risk of broadening
it slightly, how do you feel that this matches up with the increased
commitments that you are being asked to look at in terms of RDAs
and science funding? Do you feel that the savings you are being
asked to make are going to be achievable given these are additional
commitments?
Mr Evans: Yes. In both cases a
great deal of effort has been put into a measurement methodology
which defines accurately what we mean by efficiency. In both the
cases of the RDAs and the Research Councils, the total spend on
university research, we have an upward profile over the coming
three years. It is not a question of getting the same output with
less money, it is getting even more output out of even more money.
For example, in the research area, which is inherently a rather
difficult thing to measure, there is a simple thing you can measure
which is the overhead, and indeed we are driving down the overhead
in terms of the administrative cost in the Research Councils;
but we are also trying to measure efficiency where we collaborate
on building big facilities with the medical charities, as an example,
so that we get more value for money from the taxpayer's pound
because we are spending it alongside money coming in from other
contributors. The Efficiency Technical Note records the amount
of work that we have done with the Treasury and with the OGC in
trying to get a measurement strategy which demonstrates all of
that.
Sir Brian Bender: For the RDAs,
of course, our sponsorship role is cross-government. We are working
with them at the moment, led by the Department's Chief Economist,
on having an effective performance evaluation framework so as
we go into the next Spending Review we can have an agreed basis
of assessing their performance, given that they are producing
results regionally for a number of Government departments.
Chairman: You have anticipated some of
the questions my colleagues want to ask. Roger Berry, do you want
to ask anything?
Q38 Roger Berry: Yes, please, Chairman.
Sir Brian, good morning. Could I say first of all that I valued
the index in the Departmental Report. This is an innovation that
I strongly approve of. However, when I looked up "Gershon"
or "staff" or "workforce" I could not find
any pages to look at. Eventually on page 165 I did find a reference
to the 1,000 or so staff reductions under the Gershon plans, about
25% of the Department's staff. I would like Mr Evans to amplify
on his earlier comment to Mrs Miller in terms of how you are getting
on with the headcount reduction. Particularly since last year
Sir Robin, your predecessor, anticipated this would be largely
through voluntary measures. I would like some update on what is
happening on the headcount and to what extent Sir Robin was right.
Sir Brian Bender: Just a word
about indexes. I think getting them right is probably impossible
for every reader who will look everything up, but we will take
account of your comments.
Q39 Roger Berry: The Export Control
Organisation was not in the index either; I was surprised by that
too.
Sir Brian Bender: I did some child
labour for my father when I was about 12 when he wrote a dictionary
of nutrition and it was my job in those pre-computer days to alphabetise
it. I have childhood knowledge of indexing. Mr Evans can supplement
this, but as of the beginning of this month the headcount reduction
was 720 as against the target of 1,010. That figure of 720 included
80 who were located in the Government Offices, so it was not all
headquarters, and it included the reduced headcount of UK Trade
and Investment at 94 towards its target of 200. Do you want to
say more about how we are handling it?
Mr Evans: To add to what Sir Brian
has immediately said, the UKTI 94 is on top of the 720 because
we keep the two tracking systems separately. On the issue about
how have these reductions in numbers been brought about, the Department
essentially has followed a voluntary severance, voluntary redundancy
plan. In total we launched a major voluntary redundancy, voluntary
severance package, an offer, in September of last year very, very
quickly after the Spending Review. It was our conclusion, which
was something that was pressed on us by the non-executive members
of our board, that if we were going to go through such a large
transformation we should do it as rapidly as we could and try
to reach the new position as soon as possible. We took that advice
and we offered a voluntary redundancy package and we accepted
441 applications out of that package. I think we had about 550
applications in total. There were slightly over 100 where we concluded
that it was in the Department's interest to retain the services
of the relevant people. That was the biggest single step towards
that. We did have some further staff reductions which had been
programmed in from before the Spending Review which have contributed
to the reduction. There is one small area where we have had some
compulsory redundancies and that is in relation to some specialists
who have returned to us from Ofcom who are radio engineers and
who we have looked long and hard at to try to find jobs, both
within the Department and within the wider Civil Service and have
failed. There were only 27 of these radio engineers and, therefore,
with agreement with the unions, they are going to leave us on
compulsory terms.
Sir Brian Bender: Another constituent
part of all of this is some of the posts that we are cutting out
are posts that are currently occupied either by agency staff or
consultants but they do count as definitive post reductions. Not
every one of the 1,010 will be permanent DTI staff, some of them
come into that category.
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