The commercial fund clawback
119. Our one concern over the MRC allocation relates
to a matter that came up some time before the budget allocations.
In summer 2007, the Treasury took £92 million (nearly half)
of the MRC's commercial fund (the fund which has been built up
with profits from its intellectual property).[155]
This occurred because the Treasury applied some rules to this
fund that had previously not been applied.[156]
120. DIUS argued that this had not left the MRC worse
off. The Rt Hon John Denham MP, Secretary of State, told us that:
The change in the accounting rules around the MRC
research fund was known about within the Whitehall system prior
to the CSR settlement, and therefore, having been through this,
I am happy that the overall funding that is available to things
the MRC would have funded is not different from what it would
have been if the accounting treatment had not changed.[157]
In other words, the money that was taken away from
MRC has been given back in a different form. This is puzzling
since the overall science budget was set in March 2007 and the
MRC claw-back was decided later, in June 2007.[158]
Therefore, the extra money that the Secretary of State said was
given to MRC in compensation must have been taken from the (already
agreed) Science Budget, leaving less for the other Research Councils.
Furthermore, it cannot be said that the claw-back was specifically
compensated for in an increased science budget.
121. The funding claw-back additionally causes problems
in terms of the message it sends to Research Councils that are
being entrepreneurial. We agree with the Minister for Science
and Innovation who is keen "to encourage organisations
to be entrepreneurial and to raise income where it is appropriate".[159]
The Government has reassured us that this is a good settlement
for MRC because "MRC did not have the authority to
spend this money [in its commercial fund]" but now
"the MRC will be able to spend £106.9m of the
accumulated income".[160]
We maintain, however, that, as we have said previously: "Encouraging
the MRC to be self-financing to a degree and then appropriating
its savings, thus forcing the MRC to come cap in hand for funding,
is hardly redolent of good faith."[161]
We also note that the rules are such that Research Councils have
to bear a much higher "excess" on any
shortfall on predicted revenue than they are allowed to enjoy
when there is a surplus on predicted revenue. We
ask the Government to justify the Treasury rules on the treatment
of excess on shortfalls or surpluses as predicted revenue by Research
Councils and in particular the effect it has on higher risk innovation
and on the accuracy of revenue predictions.
122. We are
concerned that the Treasury's decision to take £92 million
from MRC's commercial fund will act as a disincentive for the
Research Councils to be entrepreneurial. This outcome goes against
the Government's aim, which we applaud, to improve the translation
of research into wealth. We urge the Treasury to commit to a set
of rules that encourages the kind of entrepreneurship that DIUS
is attempting to foster.
155 
