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

Examination of Witnesses (Questions 240 - 258)



  Q240  Dr Harris: All I am saying is 92 is close to 80.

  Ian Pearson: Even the MRC would have liked more money, but the fact is that it is getting a 30.1% increase in its budget over the next three years, and I think that is widely welcomed in the medical research community. To get back to your original point about the MRC's commercial fund, the situation has been that the MRC's commercial fund has been producing an income stream but without any authority to spend that. The normal way in which organisations produce income streams are accounted for by the Treasury is that they will factor those into their normal budgetary allocation processes. That was not taken into account at the time of the CSR settlement, and I think you will find Treasury argue that if you would have taken that figure into account, we would not have given so much to the science budget in terms of its headline allocations.

  Q241  Dr Harris: I am not with you, so what you are saying is that the budget was set and then this £92 million was taken out and that is just because of Treasury rules? Is that what you are saying?

  Ian Pearson: The MRC's commercial fund did not have authority to spend the money in the MRC commercial fund and the agreement reached with the Treasury was that £92 million would transfer to the Treasury but £106.9 million would be available to spend by the MRC over the next three years.

  Q242  Dr Harris: That was money it already had; it was not in exchange for the 92. The point I am making—

  Ian Pearson: Can I just carry on and try and explain a bit more. That was a process of regularising the position so that the MRC commercial fund could operate like other parts of government that generate income because it had not been operating on that basis before. The agreement is that post this CSR period that the MRC commercial fund will produce information indicating its income levels. Those will be part of the budgetary process during the next CSR period and the general rule that applies all across government is that you will forecast your income, you are allowed to keep that income, and you are allowed to keep 20% above that income, and again the agreement with the MRC is that that will hold for the next CSR period.

  Q243  Dr Harris: Do you think that is a disincentive?

  Ian Pearson: And if there need to be negotiations in the future as well because there are one-off windfall gains that that can come from, then we will have a separate negotiation with the Treasury on this.

  Q244  Dr Harris: You are very keen on knowledge transfer and translation and the entrepreneurial stuff shown by the research councils. Do you not think it is a bit of a negative message to send to research councils that if you do better than you plan, and we all hope to do better than we plan in everything—you will get 20% of it but 80% of it is for the Treasury when it is entrepreneurial work of the research councils?

  Ian Pearson: I think it is a good point to raise and certainly we want to encourage organisations to be entrepreneurial and to raise income where it is appropriate.

  Q245  Dr Harris: So why not give the Treasury 20% and given the research councils 80?

  Ian Pearson: Where I have sympathy with the Treasury—and I think you need to think carefully with this—is what incentives do you provide for people to correctly forecast their income. I think there is a point there and if you have a system whereby you are saying whatever money you generate you can keep, I do not think that provides any real incentive to get accurate information of what is likely to be raised as income as part of this.

  Chairman: I must bring this to an end.

  Q246  Dr Harris: If they get it wrong and if they underperform according to their budget they lose 100%. The Treasury does not come into the rescue with 80%, so they only lose 20% on that side, so it is not really fair, is it, that if they do their best guess and fall short they lose 100% of that funding, because it is indicative, as you say, in their spending plans, and if they overperform they only get 20%; it is not fair.

  Ian Pearson: I think the system at the moment, which has been a system that has applied right across government for quite a while, has tried to strike a balance between providing incentives and getting proper information so that the Treasury can be aware of the financial position.

  Q247  Chairman: I think the big concern we have here, Minister, is that this £92 million was in fact not unallocated, it was very much earmarked for the St Pancras development and that was built in, and even the Chairman of the MRC knew nothing about it until after the settlement. That seems to be a totally inappropriate way of managing the affairs of what is going to be a major project.

  Ian Pearson: I certainly am aware that the MRC very strongly felt that these monies were legitimately theirs and that they had indeed earmarked them for projects. What I can say though is, subject to the business case, that the Government has confirmed that it is very strongly supportive of the UK CMRI and other big, exciting projects such as the Laboratory for Molecular Biology at Cambridge, and we do believe that there is sufficient resource in budgets that can be available to make sure those projects come to fruition.

  Q248  Chairman: So "Minister guarantees project" is the statement from this morning?

  Ian Pearson: I can definitely confirm, subject to all the caveats about it being good value for money and a proper business case that the proposed St Pancras development is extremely exciting and offers a prospect of really world-class science and international leadership and we want to see it continue.

  Q249  Mr Cawsey: Having joined this Committee knowing nothing about how science funding works, and heard all the evidence, I now definitely know nothing about how science funding works, but at least I am certain about it now! I want to move on to the relationship between the Department and research councils. You have been going for a few months now with the new department. I wondered how you feel the relationship between yourselves and research councils is developing. Is it just business as usual with you having a different name or is it all very different from the old OSI?

  Ian Pearson: I only saw the OSI from the outside of course because I took an interest in these matters and have done for a number of years, but just as an interested MP rather than as a minister with responsibility. What I can say is this: like any new job I have made it my business to get to know the senior staff in research councils and to personally build up a relationship. I have started a programme where I will see a chief executive of a research council once every fortnight, so there will be a regular period of communication, and I would like to think that is what you would have expected of an active minister that wants to be involved and engaged. The basis of the relationship is still very much one of accepting the Haldane principles when it comes to making decisions. It is not my job, and frankly it would be irresponsible of me, to try and second guess decisions that research councils take on the basis of peer review.

  Q250  Mr Cawsey: So are you confident that these lines of independence that the Haldane principles hold up and they are still in place and the relationship is not being tested in that way in any respect?

  Ian Pearson: What I can say is that as a Government we clearly need to take a view on what the strategic research priorities are for our future. I think there is a debate that we will continue to have about to what extent we want to focus research spending on some of the big challenges facing society and our economy today. That is why we have talked about the grand challenges such as environmental and climate change, energy, global threats to security, aging, and it is why those are reflected in the programmes of the research councils. However, if you look in that broad area you would say that it is right for government to say we want research done in these areas because they are strategically important; it is right for the government to say things like the digital economy and nanotechnology are areas where we want to see research being done. It would not be right for us to say that that particular nanotechnology research project should be funded and that one should not. That is where the Haldane principles and the peer review process need to strongly come in. I think we have got the right sort of balance but we need to continually review this.

  Q251  Mr Cawsey: It is interesting you say that because is it not true that politicians do not spend years and years climbing up the ladder to give it all away when they finally get there. If you look at what has been happening and you see the fEC and cross-council programmes and other pre-determined expenditure being set before things get through to the research councils, it could look like the Department and the Treasury are setting most of it. What would you say to give a degree of reassurance that you are not micromanaging the research councils specifically about how they spend the money that has been allocated to them?

  Ian Pearson: I would say look at the facts and I think the facts demonstrate that we are not looking to micromanage. The facts are that we have some overall strategic priorities as a government, but we make broad funding decisions in allocating money to research councils, and we agree at a relatively high level their delivery plans and then we let them get on with it, and that is what we do. There is a question when you look at the cross-council programmes that I was talking about such as Living with Environmental Change and the others as to whether we should be encouraging research councils to spend more money in those areas. There is an argument that says, yes we should because these are important to our future and that we ought to encourage greater funding. At the moment when you look at it we are putting through the research councils some significant money in these areas, but there are still tremendous opportunities across all the research councils for response-mode funding for blue-skies research, and there will always be a peer review process, I believe, because that is the best way to allocate resources.

  Q252  Dr Iddon: Finally we are looking for some clarification on how full economic costs have worked. I assumed, rightly or wrongly, that this has been a three-year phased programme and in the next financial year we are going from 70% full economic costs to 80% full economic costs. I may be wrong.

  Professor Sir Keith O'Nions: Can I just correct you. We have been 80% since September 2005. Next year with the restructuring of the capital funding it will effectively be 90.

  Q253  Dr Iddon: So we are going from 80 to 90, so the figure of £700 million to universities that you mentioned earlier, Sir Keith, represents that extra 10%?

  Professor Sir Keith O'Nions: We spent something in excess of £400 million on full economic costs in the last Spending Review. Obviously we started with zero and we ramped up to 400+. It is our estimate that it will be in excess of 700m.

  Q254  Dr Iddon: That ramping up has been over a three-year period?

  Professor Sir Keith O'Nions: It started in September 2005 but of course it was a trickle fund and it still building up, but it will be more than £700 million in this next Spending Review.

  Q255  Dr Iddon: My question is one that I put down as a parliamentary question three weeks ago to this Department, DIUS, but for some mysterious reason the parliamentary question has been transferred to the Cabinet Office. I put it to the Minister straight this morning: if all seven of the research councils had been responsible to meet full economic costs, of which we have all approved on this Committee, some of those economic costs for running research came from other budgets previously, so what has happened to the money in those other budgets, perhaps QR money, perhaps the universities themselves were funding the cost of that research? Have those budgets been transferred in any way whatsoever to the research councils to help them meet the full economic costs of 90% next year?

  Ian Pearson: Firstly, I do not understand why your question should have been transferred to the Cabinet Office—

  Q256  Dr Iddon: --- Neither do I.

  Ian Pearson: --- So I will make enquiries. Secondly, just to confirm, full economic costing is part of the science budget. There is a well-established ring-fenced science budget. There was in SRO4 and full economic costs were part of that and similarly with SR07 the science budget settlement contains money for full economic costing, and as Keith says, that will be £700 million-plus over the next three years.

  Q257  Dr Iddon: Before we had full economic costs somebody was funding the research.

  Professor Sir Keith O'Nions: What was happening before full economic costs, as all the analysis has shown—and by the way there has been no shift since QR from HEFCE and the other funding councils also increased apace over the this same period, so there is something of a golden age here—and then one gets beyond analysis into anecdote, that, in effect, the volume of research had expanded in universities through the 1990s into the early part of this decade and the expansion was actually unfunded. Some universities were probably taking money out of teaching and the teaching infrastructure, in others it may just not have been fixing the roof of the laboratories and so on, but in effect it was on a trajectory that was absolutely unsustainable into the future. What we are seeing is how much money it takes to get back into a sustainable situation where our universities in the UK, I believe, are as competitive and as attractive as anything in the world and you can see that in terms of the ability of our major universities to appoint global talent, and you are working now and competing for global talent, which costs a lot of money over a long period of time, but it has not raided other budgets; it just was not funded.

  Dr Iddon: That is what we wanted to clarify, thank you.

  Q258  Chairman: Could I ask either the Minister or Sir Keith to drop us a note because we have run out of time. It really goes back to this question of the MRC's commercial fund and the fact that all the research councils and indeed the universities also will be making significant income from intellectual property in the future. You gave a hint that the Treasury was going to re-visit that relationship between those commercial funds into actually pocketing the profits thereof. Could you give us a note to say what discussions you have had with the Treasury about that and if there is a timescale for actually developing a new proposal?

  Ian Pearson: The MRC situation has been regularised. There is not a new proposal, but I am happy to write to explain the detail in terms of what is going on.

  Chairman: On that note, could I thank you very much indeed, Minister, for giving us a very, very frank exchange this morning and again thank you, Professor Sir Keith O'Nions.

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