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Standing Committee Debates

Draft National Endowment for Science, Technology and the Arts (Increase of Endowment) Order 2006




 
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Fifth Standing Committee
on Delegated Legislation

The Committee consisted of the following Members:

Chairman:

Mr. Mike Hancock

†Allen, Mr. Graham (Nottingham, North) (Lab)
†Devine, Mr. Jim (Livingston) (Lab)
Ellwood, Mr. Tobias (Bournemouth, East) (Con)
†Field, Mr. Mark (Cities of London and Westminster) (Con)
†Flynn, Paul (Newport, West) (Lab)
†Foster, Mr. Don (Bath) (LD)
†Irranca-Davies, Huw (Ogmore) (Lab)
†Kawczynski, Daniel (Shrewsbury and Atcham) (Con)
†Kirkbride, Miss Julie (Bromsgrove) (Con)
†Penrose, John (Weston-super-Mare) (Con)
†Purnell, James (Parliamentary Under-Secretary of State for Culture, Media and Sport)
Smith, Geraldine (Morecambe and Lunesdale) (Lab)
†Swinson, Jo (East Dunbartonshire) (LD)
†Taylor, Ms Dari (Stockton, South) (Lab)
†Vaz, Keith (Leicester, East) (Lab)
†Ward, Claire (Watford) (Lab)
†Wyatt, Derek (Sittingbourne and Sheppey) (Lab)
Glenn McKee, Committee Clerk
† attended the Committee


 
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Wednesday 1 February 2006

[Mr. Mike Hancock in the Chair]

Draft National Endowment for Science, Technology and the Arts (Increase of Endowment) Order 2006

2.30 pm

The Parliamentary Under-Secretary of State for Culture, Media and Sport (James Purnell): I beg to move,

    That the Committee has considered the draft National Endowment for Science, Technology and the Arts (Increase of Endowment) Order 2006.

It is a pleasure to serve under your chairmanship for the first time, Mr. Hancock. We are here to debate the increase in the endowment for NESTA under powers conferred on the Secretary of State for Culture, Media and Sport by the National Lottery Act 1998. We propose to transfer £15 million a year over five years to NESTA for expenditure on or connected with health, education or the environment from money held in the national lottery distribution fund. I shall set out briefly the background to this and the rationale for the money and role that NESTA is playing.

NESTA was set up in 1998 as part of a radical change to the lottery to ensure that we were not just funding buildings and programmes, but investing in people and in innovation. NESTA has been a great unsung success. It has invested in groundbreaking concepts for new services or products and has supported young entrepreneurs at the beginning of their careers.

Mr. Don Foster (Bath) (LD): The Minister is right to say that NESTA is a great unsung success. Does he acknowledge that part of the problem has been NESTA’s failure to publicise its work? Would he agree that it is crucial that it does far more in future?

James Purnell: I think that NESTA has been active in trying to set out its success. Those who read its publications and are aware of its marketing efforts know that. There is a wider role for the House in making sure that people are aware of NESTA and of its successes. Indeed, MPs can encourage their constituents to apply for NESTA grants.

NESTA was envisaged as an important vehicle for change in terms of directly investing in people, in innovation and in new ideas. We set it up with an endowment to ensure that it could work more at arm’s length and would have a genuine ability to invest in riskier products and to support innovation. Since NESTA gave its first award in 2000, more than £98 million has been invested and more than 900 investments have been made. Already some of them are starting to bear fruit.


 
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NESTA has invested in new medical techniques to improve the detection of cancer. It has invested in new procedures to enable people to grow their own teeth, which would obviously be a much more convenient way of dealing with tooth loss. It has invested in driverless, computer-intelligent taxis for airports, an investment that BAA has now backed to the tune of millions of pounds. It has also invested in a new technique to print digitally straight on to wood, and in a new car jack which is powered by the car’s cigarette lighter and uses a compressor to inflate an air bag.

NESTA has invested in much better technology to detect damaging radioactive material, which obviously would be very important in improving security, and in the commercialisation of a new glassmaking process, which combines the efficiency of the industrial approach to glassmaking with some of the craftsmanship of handmade glass, and in new techniques for the manufacture of paper from straw. Just this week NESTA was successful in attracting a co-financing agreement worth £3 million with Quester, one of the country’s leading venture capitalists, to enable one of its organisations to develop an artificial blood platelet for platelet-deficient patients. That is one of many examples of NESTA attracting funds from the commercial sector to support and enhance what it has invested through public funds.

NESTA has a very important role. Its core role is obviously to act as a provider of early seed capital which is an area for which there are not a multitude of sources of investment in this country. It is before the stage at which venture capitalists are normally interested in investing. Since October 2003, NESTA has attracted nearly £35 million-worth from commercial and other supporters, who have co-invested alongside the £7 million that NESTA provided up front.

Mr. Jim Devine (Livingston) (Lab): My hon. Friend is giving us an excellent report. Would it be possible for right hon. and hon. Members to get a six-monthly update?

James Purnell: I am happy to write to NESTA to make sure that that is given serious consideration.

Mr. Graham Allen (Nottingham, North) (Lab): I am sure that my hon. Friend will come to this point later, but can he give us a breakdown of where in the nations and regions of the United Kingdom NESTA’s expenditure is actually being made? Many of us have taken steps to ensure that lottery funding, in all its facets, is properly and a little more evenly distributed across the UK; there tends to be a metropolitan bias.

James Purnell: My hon. Friend played a crucial role in developing the policy that started the process. In our first term we took specific measures to make sure that lottery money was more equitably distributed across the country. They include the fair shares programme and, more widely, directions to lottery distributors to make sure that they reflect that policy. It is fair to point out that a critical mass of NESTA’s investment comes from London because of the existence of the City and the concentration of higher education institutions
 
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there, but one of the key things that NESTA has been doing in the past two or three years is making sure that it spreads that investment across the country. In particular, it is making sure that greater numbers of applications are generated in other parts of the country—it has opened offices in every nation of the UK, and in Birmingham and Newcastle; it is making great efforts to generate more applications from outside London and the south-east. I know that a number of hon. Members also play a part in stimulating applications from their areas, and we can all play a part in that.

That is the first part of what NESTA does: it invests in early risk capital. The second part is supporting young, creative entrepreneurs, people setting up companies in the creative industries sector. That sector is a significant part of the UK’s economy, employing up to 2 million people. To pick up on the point made by my hon. Friend the Member for Nottingham, North (Mr. Allen), it is the second largest sector of employment in London. It is also a significant source of growth across the UK. The creative pioneer programme has helped to set up 50 new businesses, from design consultancies to fashion labels. That is another important part of what NESTA does.

Keith Vaz (Leicester, East) (Lab): I thank my hon. Friend for his explanation. Is there any monitoring of how many of the grants go to the black and Asian community? Are we sure that we are giving out these grants and fellowships fairly between the communities of the United Kingdom?

James Purnell: Yes, we monitor that—it is a requirement. When people apply, they are asked whether they are members of an ethnic minority. Not everybody fills in that part of the questionnaire, but 13 per cent. of the grants have gone to ethnic minorities. If my hon. Friend is interested, 28 per cent. have gone to women. Obviously, there is more that could be done in some of those sectors, but in terms of ethnic minorities, that is not a bad achievement.

Mr. Mark Field (Cities of London and Westminster) (Con): On a connected point, may I ask about the outputs of those grants? The Minister rightly points out that some 59 grants have been made within the creative industries—I appreciate that that is not the entire area of NESTA’s work. Apparently, NESTA has invested some £14.5 million in small innovative enterprises through its pre-seed fund, and it reckons that it has brought on board a further £30 million of outside investment. For every pound that NESTA puts up, other organisations bring in a further £2, which is positive. I appreciate that, two years down the line, it is still relatively early days, but is there any evidence of what sorts of outputs are achieved and whether the businesses are successful and can repay their grants and perhaps be grantors in future?

James Purnell: There are individual examples of people who have benefited from grants going on to develop their companies. The general point, as the hon. Gentleman says, is that NESTA is investing early seed capital. A venture capital company would
 
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normally expect to wait five to seven years before seeing a return through either being able to exit the investment or a flotation. NESTA is investing two or three years before that, so one would expect a timetable of about seven to 10 years before we start to see a real critical mass of people exiting the programme, unless they can realise investment growth by selling off companies or by flotations. I am happy to write to him and set out the way in which a number of companies have grown.

NESTA’s third programme is aimed at developing outstanding talent. The programme is about identifying individuals who are leaders in their field, in particular those with academic or other expertise that they could develop through a fellowship programme—the equivalent of a sabbatical. NESTA has funded 240 such awards, many of which have enabled people to go from the pure research stage to being able to commercialise their activities.

That is what NESTA has done to date. We have now reached a key stage in its evolution as an organisation. The House will be aware that in 2003 there was a further grant of investment both to the endowment and to some of its programmes. Our firm view is that, given the seven-to-10-year framework for realising investments, it is worth continuing to invest in the success that has been achieved to date with a further £15 million a year to ensure that programmes do not have to be cut just as they start to bear fruit.

A condition of the additional funding is that, from 2011, NESTA will use its own resources and self-help to ensure that it generates the extra income. It has committed not to make further approaches such as the one that the Committee is dealing with. We are clearly investing in a successful organisation, and now would be exactly the wrong time to start to cut some of the programmes. We want to learn from NESTA’s success as well as review its programmes, and look at its operation and the way in which it has used its funding, as we would in the case of any other organisation.

What will NESTA use its funding for? It is intended to fund an ambitious programme, developed in part by the new chief executive Jonathan Kestenbaum, who has planned to focus on four issues: first, developing a culture of entrepreneurship that will benefit the United Kingdom’s competitiveness; secondly, building networks that will enable people to collaborate across different networks—much creativity comes from having specialists in different areas working together; thirdly, risk funding and developing NESTA’s core function of funding early seed capital development; and fourthly, successful commercialisation, ensuring that we do not just fund people at the beginning, but help them to get close to the market and commercialise their products.

One of the lessons from the operation of NESTA is that its role is not just to give people money and then wave them goodbye as they disappear over the horizon into a successful future. Equally important are mentoring, networks, support and advice, as well as making available further tranches of funding before people are ready to access commercial sources of revenue.


 
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Mr. Allen: As one who deals with neighbourhood renewal funding on a daily basis, I find that “sustainability”—it is the buzzword—is a big problem. Will the Minister tell us more about using the regime of funding to ensure that a bright idea can be stuck with for several years? In our constituency lives, many of us come across organisations that are living hand to mouth and, for example, have to bid for next March’s money to keep people in post. If NESTA is to continue its success, as I hope it will, the Minister and the new chief executive should be clear that funding must be sustainable. Results will then come in the longer term.

James Purnell: My hon. Friend is absolutely right. That relates to my point about not just giving people one-off funding and hoping that they will magically turn into Microsoft. That is why NESTA has wanted to give people ongoing support and the possibility of coming back for second or third tranches of money. In the end, sustainability will come down to people finding successful commercialisation, which is already happening. The advanced transport system—driverless cabs—has generated an additional £7.5 million from BAA whereas NESTA invested a total of £250,000 and the NESTA Futurelab to develop educational software attracted £3 million from Disney and Microsoft. Serious players are coming in on the back of what NESTA has invested. To answer my hon. Friend’s point, people need to be funded upfront; we must ensure that they are sustained in the development phase and then enable them to become properly commercialised, and not necessarily depend on public support after that.

Mr. Allen: My hon. Friend is generous in giving way. Are the funding streams year to year and therefore renewed on that basis, or can NESTA do a long run, with a five or six year investment programme in certain projects? I shall be happy for the Minister to write to me if he cannot reply now.

James Purnell: The majority of NESTA’s funding consists of one-off investments—either investment in the sense of taking a stake in a company so that it can develop its investment, or giving people a fellowship for a year or 18 months—but there is the possibility of coming back for more. NESTA is to consider levering-in other sources of public funding. For example, it has set up incubators where graduates can start to develop their skills, one of which is at the National Film and Television School, which is grant-funded, giving the possibility of sustainability. I will happily write to my hon. Friend with more details.

Derek Wyatt (Sittingbourne and Sheppey) (Lab): NESTA is a spectacular success story; another is the Princess Trust, which is the most successful seed-fund venture capitalist system we have ever had. What cooperation is there between NESTA and the Princess Trust? Do they share each other’s tricks, mentoring and so on? The Princess Trust has been around longer and has a longer history and record of success.


 
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James Purnell: If they do not cooperate they should consider doing so. I am happy to find out exactly what their plans are and to write to my hon. Friend about them.

That is the broad rationale for the proposal set out in the draft order. As my hon. Friend said, NESTA is a real success story, which we should sing about. However, we should ensure that we do not cut it now just when it is taking flight, to mix metaphors. I hope that its introduction has not been too much like pulling teeth, but that we have managed to grow some teeth. [Interruption.]

The Chairman: A bit of order, Mr. Foster, please.

2.48 pm

Mr. Field: Mr. Hancock, I am glad that there is impartiality from the Chair in relation to your parliamentary colleague. We should be grateful that the Member for North Southwark and Bermondsey (Simon Hughes) is not here, or we should be here all day. Even in his brief comments, when he starts a sentence with the word “finally”, you know he is about 30 per cent. of the way through his speech.

The Conservatives have no objection to the draft order. Issues of additionality are at the forefront of concerns that were expressed on the Floor of the House barely a fortnight ago on the Third Reading of the National Lottery Bill. We maintain those concerns, which will be aired during the House of Lords debate on the Bill. The Opposition believe that we should not move away from the original four causes for the national lottery stated in 1993: arts, heritage, sports and charity. Part of NESTA’s aim, which is set out on paper, is to put money into health, education and the environment in accordance with the Labour Government’s policy since 1997. That is a regrettable step, but I take note of some of the comments made by the hon. Member for Sittingbourne and Sheppey (Derek Wyatt) and for Nottingham, North, who rightly said that NESTA has generally been a success. We too feel that most of the work it has carried out has been successful, particularly in the creative industries. Soho is in the heart of my constituency and I know that those industries have benefited from some of the pre-seed capital.

I hope that we will keep an eye on what has gone on. The Minister was right to say that more time must pass before we can make any great value judgment. It is clear that a number of the smaller creative industries run by people in their 20s will fail, but such is the nature of putting up seedcorn capital that people do not expect every last investment to be a success. Equally, however, we need to ensure that we are not putting important public money from the lottery into no-hope causes. We need such money put into the success stories of the future. It is inevitable, however, that not every investment provided under seed-corn capital will prove a success.

The hon. Member for Nottingham, North was right to point out the metropolitan bias. When I receive press releases from the Big Lottery Fund, it is always a matter of embarrassment to me because of the sums that have gone into my constituency. As someone who
 
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has often questioned aspects of the national lottery, it is clear that my constituency—the seat of Parliament and the home of our creative and media industries, and home of the economic welfare of this country—has, perhaps, got rather more money from these funds than others.

Although London is so dominant in this country, there has been a move away from the centralised, London metropolitan bias to which the hon. Gentleman referred. However, suburban areas—not only suburban bits of London, but the constituencies represented by the hon. Members for Watford (Claire Ward) and for Sittingbourne and Sheppey—might suffer if there were too strong an emphasis against the metropolitan grants. We need to keep an eye open as to how this will operate.

Mr. Allen: Can I just put on the record, Mr. Hancock, just how good it is to hear a constituency MP not only sticking up for his constituents, but for people in other parts of the UK as well?

Mr. Field: I am delighted to hear that. I hope that the hon. Gentleman will take account of that when it comes to voting, not just in the next general election, but in the local elections on 4 May this year.

I will not detain the Committee any longer. We have no objection to the draft order, but I hope that we will, through parliamentary scrutiny of statutory instruments in future years, gain a clear idea of how the moneys are being spent. When a third, fourth and fifth year of a track record of NESTA investments is in place, we will have a clearer idea of what is going on. The draft order provides a significant amount of money and I am grateful that Parliament has had an opportunity, albeit brief, to scrutinise it.

The Chairman: You are a man of your word, Mr. Field. Now let us see whether Mr. Foster is, too.

2.53 pm

Mr. Foster: I was going to say that I am delighted to serve under your chairmanship, Mr. Hancock, but I am not quite sure in view of the remarks coming from the Chair at the moment. Nevertheless, I am delighted.

In recent years, many hon. Members from all parties have been concerned about this country’s failure to give adequate support to the creative industries. Often, people have felt that there is a funding gap between  the work of the Arts Council and that of the UK Film Council. I am delighted that the Minister has taken an active interest in considering ways in which we can provide increased support to the creative industries, which are crucial. The work of NESTA is part of that activity.

Like all hon. Members who have spoken, I accept that NESTA is a great success, but, as the Minister said, it is unsung. Notwithstanding what he said in response to my intervention, I genuinely believe that more work needs to be done, not only to spread the word about what NESTA is doing, but to ensure that it is sharing the examples of good practice it has developed through the various projects in which it is engaged.


 
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If evidence is required for my belief that I am right about this, I shall provide a simple example that should suffice. I did a LexisNexis search a few minutes before the Committee began and discovered that there have been only 96 articles in national newspapers about NESTA over the past few years, compared with 245 on the UK Film Council. More work needs to be done in that area. In my conversations with the excellent new chief executive of NESTA, Jonathan Kestenbaum, I saw that he was conscious of that and that he intends to do something about it. I am delighted that that will happen.

I am conscious of the fact that the work NESTA does is crucial to this country. Last November, a report from Deloitte looked at the future of the UK economy. It stressed that innovation is an area where the UK needs to improve to compete globally and that while we rank sixth in the world for capacity to support wealth creation, we are only 12th for innovation. The new chief executive said of NESTA:

    “This organisation has the potential to be, in its way, the strongest single catalyst for innovation in this country”.

If it is to deliver that, the additional funds mentioned by the Minister will clearly be extremely welcome.

The Minister referred to NESTA’s many successes. We could all cite examples of schemes we like, and it is worth reflecting on a couple of them. The poet Carol Ann Duffy was awarded £75,000 over five years to develop the enjoyment of poetry, particularly by children. Pleasingly, only last week she won the TS Eliot prize, which is the most prestigious poetry prize. NESTA is clearly picking winners to do this work. It is also working with some excellent organisations, including Bath and North-East Somerset council, my own local authority. The art development team—5 x 5 x 5 = Creativity in the Early Years—was funded by NESTA and has done some excellent work in my local schools.

Mr. Devine: As a former member of an enterprise board, I wonder whether NESTA should be working with enterprise companies too.

Mr. Foster: That is a question the Minister must address; some seedcorn money might well go in that direction. The other example I shall give, just to show how up to date I am with my reading, comes from February’s issue of the Museums Journal. It contains a wonderful article entitled “Wireless World” about the use of hand-held machines such as BlackBerries and personal digital assistants. If people walk around certain museums, including the At-Bristol, the wireless technology will link into their PDAs so that they get all sorts of information and even games that children can play linked to the various exhibits. That is another NESTA initiative that should be welcomed.

I am delighted that in the next couple of weeks people from NESTA will be back in my constituency talking about a new set of schemes with the opportunity to provide support for some of the brightest and best through its various initiatives on supporting such youngsters. However, there have been failures from time to time, although nobody has mentioned them. Two years ago when we had a debate
 
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on a similar topic, much time was devoted to the failure of the laserlight machine that someone had tried to invent to zap pieces of chewing gum off the pavements in London. The Minister might like to tell us whether that has been revived and whether it has been successful. We would all like it to succeed, as we want to rid the pavements in our constituencies of that dreadful stuff.

It is worth asking the Minister a few questions about the concerns that have been raised about NESTA. The National Audit Office’s 2004 report said that NESTA was in general working very effectively, but raised three concerns. The first, which involves how the money was being distributed, was touched on by the hon. Members for Nottingham, North and for Cities of London and Westminster (Mr. Field). The NAO acknowledged that there was reasonably good regional distribution, but was concerned that, within England, London was doing particularly well. Has the Minister assured himself that that is no longer a concern? I was also slightly disappointed when he told us that only 28 per cent. of the awards go to women. I hope that will be addressed.

The NAO’s other concern was that the various fellowship programmes were not attracting as many applications as they might because of how the nomination process operated. I have been given assurances that that has improved already and that further steps are being taken to improve it, but it would be helpful to have it on the record.

The third area of concern, which has not been touched on during our deliberations, concerns the fact that some of NESTA’s funding problems relate to how it gets interest on the endowment, which it uses for its grants. If that is tied to falling interest rates, it clearly creates a problem. The question raised by the NAO, which I ask the Minister to comment on, concerns whether NESTA has the maximum freedom possible to maximise returns on its investments. Do any barriers exist that we might be able to find ways of overcoming?

Criticism has been made, particularly in the sixth report of the Science and Technology Committee in the 2004-05 Session, about the presentational style of NESTA’s annual reports. Based on my examination of them, I think that has improved significantly, but it would be helpful if the Minister placed it on record that he is confident that that concern about the style—not the content—of NESTA reports has been overcome.

I am impressed with what NESTA is doing and I am very impressed with the programme it has set out detailing its future work and the exciting new directions in which it will go. It does fantastically good work, it will do even better in future and I am delighted that we are debating giving it some additional money to carry on with that good work.


 
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3.1 pm

 
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