Select Committee on Innovation, Universities, Science and Skills Minutes of Evidence

Examination of Witnesses (Questions 20-39)


21 NOVEMBER 2007

  Q20  Dr Blackman-Woods: You did mention this role of further education. Perhaps you could say a little bit more about what you think about that role of FE at the moment? First of all, in such an employer-led system in FE is that going to be the right way forward to ensure that the science gets embedded?

  Lord Sainsbury of Turville: Yes, there is nothing better than to get FE alongside industry than doing knowledge transfer. If actually the professors who are teaching, or people who are teachers, can actually say "This morning I was working in this factory helping them set up their quality control system. This was the problem and this is what we did," all my experience shows that is what students really like because they feel this is really what it is all about. It gets the teachers alongside industry so they make those connections and all the good things that happen in those situations, ie industry will put some machines into the FE college, the latest machines, because they know the students will then be taught the right sort of thing. It is very common in these situations that the professor rings up the company and says "I have two very good students, why do you not recruit them because they will be very useful for you." That kind of relationship based on knowledge transfer is very productive both to the quality of the teaching and to the contribution that the FE college can make to the local community.

  Q21  Mr Marsden: Very briefly could you go back to the point where the Chairman asked you about the TUC's critique of your Review. You gave us a classic third way analysis of the situation, which is fine, but is there not something at the margin here that you sometimes perhaps have, particularly with small and medium-sized enterprises, particularly those who are working in absolutely new areas like nano technology, is there not a point where structured government support for innovation should go a little further than simply the third way solution that you advocated?

  Lord Sainsbury of Turville: I was aware I was giving a rather complicated answer to the question but I think the thing of picking winners has become a phrase which is designed to cut off intelligent discussion of the issue. Obviously in one sense that is what all industry is about. Who is in the business of picking losers or not being concerned whether the thing is a winner or loser? The question is what kind of decision are you taking. The best example of what they are doing is they are doing a big project with the aerospace industry on the environmentally friendly engine. This is clearly about picking a winner. The aerospace industry and the TSB knows that the industry has got to find a solution to this problem of pollution, and producing environmentally friendly is a winning product but the actual project is hugely driven by the aerospace industry saying this is what we need, this is commercially the kind of thing which is the absolute key if you are going to do user-driven research.

  Q22  Mr Marsden: That is a large organisation not an SME. Do you not accept that there may be situations in which SMEs need a little more hand holding further down the line?

  Lord Sainsbury of Turville: I start from the basis that the people who know about the market, the market needs, are the companies and basically they should drive and do their research and development, and their development particularly. What government can do is basically in areas where collaborative research is required, because that is where the market failures have been, and they can do that. We have an endless history of failure of civil servants trying to produce products in the commercial market. They do not know what the realities of the market-place are and by and large they should not get involved in it. I think government does have a role to play in these issues but you need to be careful. It is about creating the right conditions not trying to run the businesses.

  Mr Marsden: That is not what I was suggesting but we will leave it.

  Q23  Mr Cawsey: In your Review you say that our progress in the race to the top has been slowed down or hindered by the duplication of research with an annual waste of maybe £20 billion a year. Do you think that encouragement is going to be enough to ensure that businesses and governments do better in the future?

  Lord Sainsbury of Turville: I am not aware we have said there was duplication of £20 billion. What is the context of that?

  Q24  Mr Cawsey: The Review states that as information in the UK's patent databases has not been fully exploited, there could be annual waste of up to £20 billion due to the duplication of research. Is encouragement going to be enough to ensure that business and government do better in the future?

  Lord Sainsbury of Turville: This is about information. Clearly if you can provide industry with more information which says this piece of research has been done and has already produced a patent, then companies are not going to do it, they are going to make use of patents and go on from there. This is about patent information flowing through to companies or allowing companies to go to the patent office so they could get a really good knowledge of what would have been done in the field so they did not duplicate research.

  Q25  Mr Cawsey: You think encouragement is the way?

  Lord Sainsbury of Turville: It is about information, yes.

  Q26  Mr Cawsey: What consideration did you give to making financial awards for innovation like HEIF funding or your proposed proof of concept funding depending on demonstrating that the technologies in question are novel?

  Lord Sainsbury of Turville: The HEIF funding is essentially about incentives. It is incentives for university to put in the infrastructure and people to do knowledge transfer; it is never related to a particular piece of technology. Clearly when it is proof of concept in awarding those grants one is always looking to see that it is something novel. The people doing the evaluation should take that into account. I think there are a lot of rather different situations.

  Q27  Mr Cawsey: You say you consider HEIF, whether it should be novel, and you rejected that because you did not think it was appropriate. Is that what you are saying?

  Lord Sainsbury of Turville: No. This is a very good example that you should create the conditions but not try and get involved in individual decisions as government. HEIF money is not about individual projects but a grant of a sum of money made to the university for them to use in supporting knowledge transfer. You do not get involved in individual projects. That seems to me exactly right. This is creating the conditions for knowledge transfer to work. It is not making decisions that X company or Y company should be supported. That is exactly a good example of this particular point.

  Q28  Mr Cawsey: There have been criticisms that the benefits of the R&D tax credit system are limited to the costs involved and would not government money be better spent in ways that foster innovation and greater return.

  Lord Sainsbury of Turville: You have to take evidence and look across different schemes in different countries on this and on the whole it says it does support innovative companies. In some particular cases the R&D cash has been a huge benefit. For fast growth hi-tech businesses, particularly biotech companies, it has been hugely valuable because it supported them during R&D in the early stages. I think when you get to the very big companies quite often its main benefit is part of inward investments promotion that actually companies say we will come to the UK because they have an R&D tax credit and we put R&D there because that is one of the benefits you get.

  Q29  Mr Cawsey: The fact it is generous means you attract more money. The criticism, as I understand it, is the tax credit system is a poor return for the taxpayer in terms of what we get back out of it but you say the fact it is generous will attract people to come in.

  Lord Sainsbury of Turville: It has an impact on inward investment. It supports the level of R&D in medium-sized companies and in fast growth hi-tech businesses it has had a huge benefit.

  Q30  Chairman: What evidence is there at all that R&D tax credits do not, in fact, carry a huge amount of dead weight costs? Has there been any analysis of that at all?

  Lord Sainsbury of Turville: I think there has been a review which has shown that it is actually beneficial. As I say, it has rather different impacts in different levels of company and there is certainly good international evidence that it does work.

  Q31  Chairman: Is there any evidence that companies would have put the R&D in anyhow irrespective of whether they would get the R&D tax credits and therefore that is a cost on the taxpayer which could be used elsewhere? That is the point that Ian is making.

  Lord Sainsbury of Turville: I totally agree with you. You cannot rule out there is quite a heavy dead weight cost here but nevertheless it is beneficial. I rather look at in a slightly different way, which is if you are going to lower corporate taxes this is the way to lower it.

  Q32  Dr Turner: Do you not think that one of the acid tests of the effectiveness of R&D tax credits is the percentage of turnover that British companies invest in R&D? I know from my own anecdotal experience that lots of small companies only survive through part of their progress across the valley of death on the R&D tax credits. It is very useful but the overall picture seems to show very little change in the percentage investment in R&D, do you not think?

  Lord Sainsbury of Turville: One of the things which is quite interesting in this report is looking at our innovation performance in chapter 2. I know this is a pretty boring chapter and even the Treasury officials said that I could not expect anyone to read it.

  Q33  Chairman: We found in riveting.

  Lord Sainsbury of Turville: We do look in great detail at this question of why our R&D level is 1.8% and other countries are higher. It is pretty clear that it is related to the structure of our industry. We are very successful in one or two industries which have either very little, as a percentage of GDP, or small amounts of R&D. We are very successful in financial services where there is virtually no traditional R&D. We are pretty successful in oil and gas which does quite a bit of research but as a percentage of GDP is very small. Then there are one or two areas where we have strong industries but they are foreign owned and the R&D is done abroad. If you take all those things into account, where we have industries which are competing internationally and R&D is very important we do as well as other countries. What we argue in the report is this is not a question—and I have to say this is where I think we are much better informed of raising the level of R&D across all industry because in the key places we are doing pretty well but making certain that we have enough emerging new industries in the hi-tech areas which will be able to help us compete in the future. That is why policies should support that rather than trying to bring up R&D across the country because that is not the problem.

  Q34  Dr Turner: Do you think that R&D tax credits will help in key areas where the R&D does happen, like aerospace and pharmaceuticals? Do you think it will help in maintaining our position or even enhancing our position?

  Lord Sainsbury of Turville: Yes, I think it will because this is part of an American pharmaceutical company deciding where they are going to put their R&D facilities in Europe. People can say put it in the UK because we have very good basic research, we have got very creative scientists in this field and you get an R&D tax credit. That makes quite a compelling package.

  Dr Turner: The icing on the cake.

  Q35  Mr Cawsey: In your Review you talk about the small business research institute, how it was set up originally to try and mimic the success of the American system. In reality that has not happened. Particularly you make a comment about how the behaviour of the departments has not been able to get the best out of it. You have made a number of reform suggestions. Why do you think these particular reforms will change the behaviour of government departments, always assuming they have not lost them in the post?

  Lord Sainsbury of Turville: We have done two things to deal with this issue: one is effectively we are saying it is going to be administered and run essentially by the TSB. I certainly did not understand one particular aspect of the SBRI, which turns out to be very important, and we did not build it into the original version. What we did not understand is that the way it works in America is not a question of 2.5% of R&D going into grants to SMEs for research, what they actually do is say we are interested in research in the following areas, ie medical diagnostics. Then any small business in that area can come forward with projects, they are evaluated and if they are thought commercially viable they are supported. That is very different from saying the department wants to have research done and 2.5% of it is done by SMEs in technology areas. What we are now going to have is the TSB contacting departments to ask what are the areas you want to see projects in, and twice a year we will have calls for projects in those areas. It will become quite clear if departments are not putting forward technological areas. I hope this Committee and others would jump on it if it turned out that departments were not putting forward projects and then the evaluation will be done by the TSB and the department. It will all be very visible what is going on. Secondly, we have suggested, and this has been taken up with enthusiasm by DIUS, there should be an innovation report each year which will report on exactly these sort of issues: have the different departments put forward areas they are interested in and have there been projects agreed in those areas. It will be highly visible whether it is working or not and I hope Committees like this will jump on the innovation report and kick people around if they are not performing.

  Q36  Chairman: We do not kick anybody; it is not our style!

  Lord Sainsbury of Turville: Persuade them in a participatory manner to perform better.

  Q37  Dr Turner: Now that the innovation activities that were in the DTI have moved into DIUS, how do you think it will affect the performance of the innovation and knowledge transfer agenda? Do you think it will help?

  Lord Sainsbury of Turville: It has some pluses and, always with these things, some negatives. The pluses are you do bring together some things where it is very important that they are brought together, and the particular one is funding of the universities. To have a dual funding system, the two parts of which are in different departments, is not very clever. We have in recent years got them to work together but nevertheless there are some real benefits to be had from that. There is another issue which is focus. The problem with the old DTI was it covered such a wide range of issues, and as the Secretary of State moves from one controversial issue to the next, if he is not dealing with the closure of rural post offices he is dealing with trade issues or energy problems, and so on. Even if the Secretary of State is really interested and keen on science and innovation the amount of time he can give to that, which is usually not a crisis, is rather small. One of the advantages of setting up DIUS is that you will get John Denham able to give much more focus to the science and innovation agenda. If there is a negative it is that you are taking innovation away from the industry side and obviously that is something which is very important. I have to say it was not, even when they were in the same department, tremendously strong. Maybe at the end of the day the moral is you can go on moving things around indefinitely but the big question is whether you achieve anything other than slowing things down.

  Q38  Dr Turner: You can reform structures until you are blue in the face but if they do not have the right people in them you will not get anywhere.

  Lord Sainsbury of Turville: Or the right processes. How do you bring together the innovation agenda with industry? This may be not about structure but process.

  Q39  Dr Turner: Some of us always looked upon the old DTI as competitive with the Home Office at times. There is a real issue, is there not, in the interface between initial innovation between a company getting to proof of concept and then wishing to commercialise. At some point they are going to have to be weaned off relationships with DIUS and into DBER. How do you think this is going to work in future? As you say, it was not exactly perfect when they were both in the DTI. Can having them in separate departments possibly advantage it?

  Lord Sainsbury of Turville: I would like to think that when they are weaned off DIUS they are going to go into the world of commerce and they do not have to be supported by anyone. I do not think it is a question of being handed from DIUS to DBER in that sense. This is where I think you can put in place processes. The director of innovation in DIUS is going to be a joint appointment of the two departments and he should work across the two departments and you should make certain that you have processes to co-ordinate policy between the two.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2008
Prepared 31 October 2008