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CORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 113-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

Innovation, Universities and Skills COMMITTEE

 

 

The Sainsbury Review

 

 

Wednesday 21 November 2007

LORD SAINSBURY OF TURVILLE

Evidence heard in Public Questions 1- 62

 

 

USE OF THE TRANSCRIPT

 

1. This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.

 

2. The transcript is an approved formal record of these proceedings. It will be printed in due course.


Oral Evidence

Taken before the Innovation, Universities and Skills Committee

on Wednesday 21 November 2007

Members present

Mr Phil Willis, in the Chair

Dr Roberta Blackman-Woods

Mr Ian Cawsey

Dr Brian Iddon

Mr Gordon Marsden

Dr Desmond Turner

________________

Examination of Witness

 

Witness: Lord Sainsbury of Turville, a Member of the House of Lords, gave evidence.

 

Q1 Chairman: Could we welcome this morning, to our very first oral witness to the new Innovation, Universities and Skills Select Committee, Lord Sainsbury discussing his publication of The Race to the Top. You are very welcome to this Committee and we are grateful to you for coming at such incredibly short notice; it is greatly appreciated. You stood down as science minister, having done an excellent job, and secured significant additional resources for science and innovation. How did your involvement with this Review come about?

Lord Sainsbury of Turville: It came about because when I told the then Chancellor of the Exchequer that I was leaving government he said he would like me to do one last thing, which was to do this report as part of the Comprehensive Spending Review. I was delighted to do that because there were issues which still needed thought. The Chancellor also said that he wanted to have a look at science and innovation policies in the context of how we compete against countries like China and India which have 5 per cent of our wage costs. He is very concerned that if we do not have a clear strategy for competing with them then the call for protectionism will rise and will be very difficult to resist, and you can see this happening now in America. I was very delighted to do it in that context.

Q2 Chairman: You have always been noted as a fairly radical thinker within your portfolio and yet when you launched this report you made it clear that you had consulted widely on the report and you had taken a lot of views together. Is this a consensus report and, if so, were their areas where you would have liked to be more radical? Is this a summary of the lowest common denominator or is it the radical report which you would have liked if you had a totally free hand?

Lord Sainsbury of Turville: I do actually believe in participation, particularly in policy making. I do not think it is actually a very good procedure to have review groups like this which just call for evidence and then go off, make up their mind what should happen and then say these are the answers. I just do not think one has enough knowledge of the practicalities to do that. Therefore, I was very keen that not only do we have meetings with all the actors but that we actually told them what we thought the problems and opportunities were, agreed with them what they also saw, and then involved them in the policy making. I think that has two advantages: one, it means what you put forward is better because it is more grounded in reality; and, secondly, when it comes to implementation you have buy-in from the people who are going to implement it which is hugely helpful.

Q3 Chairman: When you launched the report at Downing Street it was very evident that virtually all the stakeholders were universally supportive of what you recommended and that is quite unusual.

Lord Sainsbury of Turville: It was a very good report. The question you asked is did I want to do some other things and did I temper that to get consensus, and the answer is no; there is not anything that I would like to have done and proposed which is not in this report.

Q4 Chairman: You used the term, which is being widely quoted, of an innovation ecosystem, which was an interesting concept early on in the report. It differed significantly from, if you like, the old innovation framework which was of a linear single line continuum from research right through to delivery of product. How did you come to hit on that as an idea? Why was that so important? It is a very significantly different way of looking at the innovation system.

Lord Sainsbury of Turville: Basically because I think it is the right way to look at it.

Q5 Chairman: It is radically different.

Lord Sainsbury of Turville: Let me say why I think it is the right thing and then why it appears to differ from what sometimes we have said in the past. Everyone now agrees that the kind of linear model, where you put technology and science in one end and product and services come out the other, is not a good representation of what happens. It is much more like an ecosystem. There are all kinds of interchange of knowledge, a lot of feedback and so on. If you want to characterise this, ecosystem is a much better term. At the same time, you have to be practical about how government intervenes in these situations. The reality is you cannot get involved in trying to make the ecosystem work better other than in two contexts: one is the supply side. You can help on education, venture capital, which is the supply side, and you can also help in terms of at least the demand side as far as government is concerned. While I think it is right to call it an ecosystem, the practicalities are you, in fact, intervene at the two ends. I want to make it clear we saw it as an ecosystem but equally it is not the role of government to try to get in there and intervene in very complicated processes which go on with innovation.

Q6 Chairman: It is interesting that the minister for science said this was simply fine tuning. There seems to be a great difference between what you saw as quite a significant change in actually looking at the innovation chain as an ecosystem rather than fine tuning a system that is working perfectly well. Is there a contradiction there?

Lord Sainsbury of Turville: No. I think in terms of changes of policy it makes very little difference except in one regard where I think we have probably moved our views. If you go back four or five years when we were first trying to get people to think about supporting high tech clusters, we went along with the then conventional view that there are clusters which are very industry focused and perhaps RDAs and other bodies could do more to support specific hi-tech clusters. I certainly feel that now is not the right approach and actually a rather more general kind of policy, which is just to encourage hi-tech clusters around universities, is a better approach. What one sees is that actually hi-tech clusters actually change over time. Whether it is Cambridge or Silicon Valley, they are not just about one industry but about an innovation ecology and they change. Both Cambridge and Silicon Valley started in electronics, both of them at a particular time became much more focused on biotech and both of them are now moving more into the internet field. I think that is rather significant because it shows these are ecologies, they do change, and you can support the conditions for those but you should not try to get involved to the extent of saying we are supporting a particular kind of technology.

Q7 Chairman: One of the critical voices was the TUC who said that you had not followed through the logic of your report and that really you ought to be picking winners, if I can summarise their position. What is your response to that? You made it very clear that government should not be in the job of picking winners and it is up to the market to do that. There seems to be a problem with the TUC, the two ends of the continuum: one of letting the market rip and one of being able to put your resources specifically into key areas that you think are going to create jobs and wealth.

Lord Sainsbury of Turville: There are three kinds of positions that you can take on this issue of micro-economic policy. One, you can say, is a right-wing view which is simply it is all up to the market, nothing to do with government, the market should just get on with it. There is another view which really says that governments should get involved in commercial decisions and try to steer industry in particular directions. My own view, and I think the government's view, has been there is a role for government but it is about creating the right conditions for industry, and government should not get involved in any way in commercial decisions. What that means in practice is it is right for the government to give incentives to universities to do knowledge transfer. That is not saying you should transfer a particular piece of knowledge or support a particular company but it is giving the right incentives. In the case of technology, it is right for the TSB to support technology in new areas which it thinks is commercially very important but it should not be getting into this is the kind of product which should be actually developed. If you are going to get involved in applied research, which I would prefer to call user-driven research to make the point clear, then it should be user-driven research and should be driven by industry and industry needs not by government saying this is the kind of product you should develop.

Q8 Chairman: You started your remarks this morning, and you have made this point very, very clearly in the report, that we cannot compete with a low wage economy which is working at incredibly low wages in China and India and that the race to the top is really about developing a higher value-added knowledge intense economy in the 21st century. What happens when India and China also get to the top, because they are racing even faster than we are to move out of low wage economies into high value-added knowledge based economies too? What happens when we all get there?

Lord Sainsbury of Turville: This is an interesting point. We described the point in the report as a race to the top because in some aspects it is a race but it is a rather important kind of race. First of all, it is not a zero sum race; it is a race in which everyone can have prizes.

Q9 Chairman: That is my kind of race.

Lord Sainsbury of Turville: Chris Woodhead would be really upset about this. Everyone can be winners. China and India can grow very rapidly, we can grow very rapidly and, on the other hand, you can also be a loser. If you do not go into high value-added products and services and India and China are coming up, you can actually be a loser. The other thing is there is not a finishing line. There is not a point at which you can say this is the end of the race so we will be moving ahead and other countries will be moving ahead. China and India will be coming forward but they may not catch us up and there will be a changing pattern, as there has been a changing pattern throughout economic history. There was a moment when Holland was the leader then the UK and then in due course America took over. This a changing pattern and there is not a finishing line. I do not think we all get to the top and that is the end of it is a realistic scenario.

Q10 Chairman: People often fall off the top, as I remember from my climbing days.

Lord Sainsbury of Turville: The problem is there is not a top and there is not a finishing line. This will be a process which will go on with different countries taking the leadership role probably indefinitely.

Q11 Dr Blackman-Woods: You will know, largely because you were very involved in this, the government has been trying to improve knowledge transfer for quite some time. Can you tell us what your view added to that and why is it strategically important at this time?

Lord Sainsbury of Turville: For eight or nine years we have been putting in place policies to encourage knowledge transfer: University Challenge, science enterprise centres and then we put it all together to simplify it into HEIF. I hope the report makes it clear that this has been very successful. We are now getting knowledge transfer from our universities which is comparable to the situation in America and probably, in that sense, ahead of most other countries in the world. I think we should not rest there. There are some opportunities to go further and we suggest four areas: we want rather more specific targets for research councils; we think there is a big opportunity with the business facing universities; we have seen a situation where the world class research universities are doing very well in knowledge transfer. There is a big opportunity for other universities to do knowledge transfer. We think FE colleges could be brought into knowledge transfer. That would be good both for the teaching and also for their morale and the feeling they can contribute particularly to those areas where there is not a university around. We want to double the number of knowledge transfer partnerships and introduce mini-KTPs. Those were all good ways of taking this agenda forward.

Q12 Dr Blackman-Woods: Could I ask you to comment on the various sectors and tell us what you think was critical in your report in terms of changing the direction or giving them a different focus? Could we start with the Technology Strategy Board which you mentioned earlier?

Lord Sainsbury of Turville: The Technology Strategy Board has been a success. It has done what we asked it to do in terms of the knowledge transfer partnerships and collaborative R&D. I think it has now a lot of goodwill behind it from industry and the research community. We feel that now it is an executive non-departmental public body it could have more of a leadership role because the system of supporting technology development is very fragmented across government. We are very keen it brings together the work done by RDAs, research councils, particularly it has an important role in terms of working with government departments because that is an area where we still have a long way to go. The innovation platform is a very good way of pushing that agenda forward. Also in emerging technologies, bringing together the various arms of government in areas like standards and metrology research is very helpful. Then in a rather broader sense you find that all the different bodies, if you are not careful, start saying we must have a strategy for biotechnology. North East Regional Development Council say they need to know what a biotechnology strategy should be so they go off and do some consultancy and get it done. The consultancy goes and talks to the biotech industry and the report is produced. Then the South West Regional Development Agency say they need a biotechnology strategy and invariably they go to the same consultancy who changes the name on the top, presents it, and they get fees for that. Then UKTI say they have to have a strategy for biotechnology and they go and talk to industry. Industry is getting rather fed up by this point so we are rather keen that the Technology Strategy Board has responsibility for putting in place those things and other bodies feed off that overall view of technology development.

Q13 Dr Blackman-Woods: If you see the Technology Strategy Board having this leadership role, how would you summarise the role of the higher education sector the research councils and the RDAs?

Lord Sainsbury of Turville: They all have clear but different roles. The role of the Technology Strategy Board is to have a clear view of what is happening in different high technology industries and what is the kind of support that can be given to technology development in those areas and to pool that all together.

Q14 Dr Blackman-Woods: Can you say something more about what you think the key direction of higher education and the research councils and the RDAs are to that core process of knowledge transfer?

Lord Sainsbury of Turville: They all have different roles in that. Obviously it is absolutely central to what the TSB is doing. It is one of the three objectives now of universities: teaching, research and now the third stream of knowledge transfer. Research councils are basically focused on funding research but I think in some rather specific areas they have a responsibility for knowledge transfer, particularly in their own research institutes. Of course RDAs have a number of responsibilities which we have given them which also relate to knowledge transfer.

Q15 Dr Blackman-Woods: Do you think RDAs are equipped to do that? We all have experienced difficulties in our regions of the RDA knowing what to fund and when?

Lord Sainsbury of Turville: There are a number of schemes which are about supporting innovation in companies which have been devolved to the RDAs. This is wholly right because trying to do all at the centre of Whitehall is not necessarily sensible. I do think the whole situation needs to be put on a slightly more organised basis in the sense that there should be a standard. This work is now going on because we really have far too many schemes out there. There is now a lot of work going on to reduce this to maybe ten or twenty schemes and actually have a national specification of what the scheme should be. It is then up to the RDA as to which one of these it funds but they fund it on the basis not of their own scheme they have made up but on a nationally specified scheme so that companies know that when they are talking about a particular scheme it is the same one across the country. Equally, we cut the down the number of schemes because it is an absurdly high number. This is an important area because when the decision was made to devolve it the view the civil servants took was saying it is nothing more to do with us so we throw it over the wall and the RDA get on with it. I think it is right and proper that you should have an overall national policy within which RDAs have the decision as to where they put their money but not what kind of schemes they put it in.

Q16 Dr Turner: I was personally very delighted when RDAs were first mooted because it seemed to me they might fill a gap that was missing in the innovation and commercial development process in this country. When you look at America where the State gets involved in funding spinout companies and all sorts of things, the German Landers, et cetera, France can do comparable things, I really thought that the RDAs were going to be able to step into this role and assist, in various ways, emerging technology companies. Clearly there has been a lot of variation in the performance of individual RDAs. What is your general impression of how successful RDAs have been in support of emerging companies? Do you think the RDAs themselves have sufficient knowledge to do the job properly?

Lord Sainsbury of Turville: I think there has been variation across the RDAs in terms of the support they have been given and how well they have performed. Again, I think more could have been done to get them to work within a framework so they produce economic plans. I do not think those plans get a high enough level of scrutiny from the centre of government. Also because of where they came from, a lot of them come out of regeneration bodies, they have tended to focus too much on regeneration rather than science and innovation and support for projects which will really raise the economic performance of regions. As you can see, that is what we have suggested, that more resources should go to support for science and innovation. We have made it clear where we think that should go in terms of nationally specified schemes but they can decide which ones to support. When it comes to collaborative R&D, they probably do not have the skills to do this, besides which I think it is enormously unhelpful to have each RDA suddenly decide to support a scheme in intelligent transport systems when there should be a national scheme. That is why we have agreed with them that they will put aside money in individual regions to support the major collaborative R&D projects that TSB put forward. They can decide where they put their money, which obviously will be in relation to companies in their region, but the assessment of the schemes from companies, the whole administration of it, will be done by the centre, by the TSB, and it will be done on a national basis. That is a way of dealing with this problem.

Q17 Dr Turner: Are you satisfied that this will not be too administratively cumbersome and that small companies will not be spending all their time writing 50-page proposals and ticking hundreds of boxes and in the end getting absolutely nowhere and getting bogged down?

Lord Sainsbury of Turville: I hope not. It will be run by the TSB and the TSB is now a executive non-departmental public body. It has now a very good chief executive who has come from airbus and I think you will find that it works in a very efficient entrepreneurial kind of way. We will avoid what has happened which is both the RDA and the TSB reviewing individual projects. I think we can speed it up and make it more efficient.

Q18 Dr Iddon: All the nine RDAs were asked to set up science councils which they have, the North West, the North East, SEEDA and so on, but it is very difficult, even though they set up science councils, to find out exactly what they are doing in the science and innovation area. I will give you an example. The Parliamentary and Scientific Committee at the moment are trying to set up three speakers to come from the RDAs and tell us what they are doing to inspire innovation and science in their regions and apart from George Baxter from the North West Regional Development Agency it has been extremely difficult to put this programme together. Why, when we have focused so much money on the RDAs and asked them to set up science councils, are we in this position where even members on the old S&T Committee could not find out what they were actually doing? There is no annual report, for example.

Lord Sainsbury of Turville: Again, there is rather a lot of variation in how well the science and industry councils work. We are specifying some areas where we think they should be definitely involved, i.e. when it comes to advice where the RDAs should support particular projects of the TSB that should be something they should ask the Science and Industry Council to advise them. This is a case where one needs to specify more clearly what the role is of the Science and Industry Council.

Dr Blackman-Woods: You recommend that the next round of HEIF funding should not be competitive. Can you explain why that is? Do you not get more value for money in the bidding process?

Short break due to fire alarm

Q19 Chairman: Roberta was just asking you about the HEIF funding.

Lord Sainsbury of Turville: What I learned when I was a minister was if you start a new scheme there is a huge advantage in having the first round or two on a competitive basis because if you just give the money out what happens is people take the money and go on and do what they were doing before. You need to get them to really think. If it is competition, they really think about what they are doing and put it into the competitive process. That probably works for the first two rounds. The difficulty is they employ staff to do whatever it is that needs to be done. If they cannot be certain of long-term funding, then all those people are put on short-term contracts and that is not a good way to do it. Also, if you have a competition you have to accept that sometimes people get a lot of money and other times they get no money or very little. That is not really very productive because someone has built up a team of people, they have just got started and are beginning to do it and suddenly the money is cut back or suddenly they get a lot more money. If you are not careful what you find yourself doing is trimming the thing down so no-one can lose or gain more than 20 per cent. You have all the business of competition, and so on, which is difficult. I think after a period it is better to go to metrics and say the money will be given out and in those metrics the amount of work you do with small businesses counts for double. That is a good way of incentivising to perform well.

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, i.e. 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 per cent 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, i.e. 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 per cent 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.

Q40 Dr Turner: One very much hopes so. Say an emerging energy technology company who has done its proof of concept then needs capital grant funding towards its first commercial demonstrator, there are obvious link-ups there and if they go wrong, then things may not happen which should happen.

Lord Sainsbury of Turville: That is as much about process as about structure.

Q41 Dr Turner: You have recommended an annual innovation report from DIUS which I think everyone would agree is very sensible. Can you say a little more about what sort of performance indicators might be built into that report to give some realistic idea of progress? The simple setting of targets, which is a popular activity in Whitehall, may not be the whole answer.

Lord Sainsbury of Turville: You get enormous sway by reporting what has happened. For example, we now have very good statistics on university performance. We know how much licensing, how much industrial consultancy they do, how many spin-off companies, how many patents granted and so on. Putting all that together in one place, together with what support for science innovation each RDA is giving and against what particular projects, would be hugely helpful in terms of government departments. What has actually happened on their R&D spending? Have they raided this year the R&D budget to help with immediate operational problems? Are they doing SBRI? Have they produced their science and innovation report? There is a lot of material which needs to be put on public record so that one can monitor their performance. I think over time out of that you might then develop some metrics of performance but you get a huge way by finding out what is happening and exposing that to public scrutiny.

Q42 Dr Turner: I was going to ask you about government departments R&D budgets and you have already referred to the fact that they regrettably get raided from time to time when something else goes on in the department which is not ideal in a country which is trying to proceed by scientific and technological advance. Do you think that the current system of having individual departmental R&D budgets is entirely sensible, especially as often R&D work is cross cutting? More than one department, more than one area, will benefit from the work. Do you think we might look at a different way of financing government research, a different budgetary structure?

Lord Sainsbury of Turville: The original concept, which as a whole is right, is that the research that government departments do to support their policy and operations should be run by them. Someone sitting somewhere else trying to guess what they need is not a good way to do that. I think the system could be vastly improved. We need to be much clearer about producing science and innovation strategies. We have put in a system whereby chief scientific advisers advise government departments. If the budget is being raided, they can go to the chief scientific adviser and he can go to the Treasury to have this stopped, it just has not been operated very well. Secondly, there is a real issue about coordination across departments, because something like climate change or energy involves a whole series of departments. Again, as we have said in the report, this is kind of basic management stuff and it is really about the chief scientific adviser getting his chief scientist in each department working together. There is nothing more complicated than them getting together and saying "I am doing some work in this area, what are you doing?" and where there is cross-departmental themes working together. That is what they should do because that is what chief scientific advisers are supposed to do. They do not require vast amounts of money or structures to do it, they should just do it.

Q43 Dr Turner: There is nothing in the structure to stop them.

Lord Sainsbury of Turville: No, they should just sit down every so often and say "This is what I am doing, what are you doing?" We set it out in the report and when you read it you think really I should not have to spell out that what you have to do is sit down together and see where you are doing the same thing then appoint one of you to look at it across government and get on and do it.

Q44 Dr Turner: Obviously you have some inside knowledge from your experience but are you sure you do not get occasions when departmental bean counters say "You cannot do that, it is not been spent exclusively on the work of this department."

Lord Sainsbury of Turville: Yes, but the chief scientific adviser has to stand up and say "Get real. We are trying to run a competent outfit and we need to work together."

Q45 Dr Iddon: I want to turn now to science education. Like you, I am concerned about careers advice given to young people with regard to STEM subjects. It used to be done by a specialist advisory service in local authorities and then we set up Connexions and I think things went horribly wrong when we set up Connexions. You have recommended that STEM careers advice should be introduced into the curriculum in this report. Should that be done by STEM teachers or by specialist careers advisors re-introduced into the school? Could you elaborate on that?

Lord Sainsbury of Turville: You are quite right, the careers advice we are giving kids at the moment is really appalling. It stems, in my view, from two things: one is the setting up of Connexions. I think it should be an integral part of what goes on in the school. Someone coming from the outside on occasions and doing it is not the right way of doing it. It should be an integral part of school life. Equally, it should not be done at 16 and 18. The evidence shows kids make up their minds about these things not at the moment which is convenient for the educational system but in many cases quite early. There is some work the Royal Society has done which shows that a lot of kids have made up their minds by 14 and beginning to think about which way they want to go and whether they want to do science or not. I am afraid the second thing was there was a heavy emphasis then put on that it was not just careers advice that the kids could get from Connexions but should more generally be about their life in all its aspects and that has meant the careers advice has been focused on the less able pupils rather than the more able pupils who are getting very little careers advice. I think you have to do careers advice to both lots of people and not try to do everything with the careers advice service. This issue has now been tackled but DCSF and they are going to appoint someone to co-ordinate the careers advice. There should be guidance. Without telling a school you have got to do two hours or three hours at this point, we should be giving indications at what point in their careers and what kind of advice should be given to them. We are suggesting that there should be CPD for teachers so that they can give careers advice and also that it should be part of classroom work as well as interviews or different points. There is huge scope to improve that and to improve the careers literature and so on. It is really what the problem is because if you look at the supply of young people doing science and technology at universities actually the numbers are very good. The numbers are going steadily up as the number of young people go into university goes up. It has even increased as a percentage of the student population but there are real issues about the subjects they are doing. There is a serious mismatch between the subjects they are doing and what you might think are the needs of the economy. There is a lack of people doing chemistry I suspect because they think the chemical industry is what it is about all about which does not look a winner, whereas there are lots of opportunities in pharmaceuticals and chemical engineering and so on. Engineering technology, the numbers have declined although now stabilised. You have huge growth in three areas: forensic science, sports science and psychology. For sure in the case of forensic science we do not need that number of forensic scientists. We have talked to the forensic scientists and they would say we do not want people who have done forensic science at undergraduate level, we want people who have done chemistry at undergraduate level and an MSC in forensic science. I think it is debatable how many psychologists and sports scientists you need. This is all about careers advice. We have a real responsibility to give them really good advice because if you are doing physics at a research university maybe it does not matter which subject you do so much because what you are getting is fantastic training in science and analytical science but if you are doing vocational courses there is a responsibility on the system to give kids good advice about what kind of courses are really needed by the economy. That is why we both suggested more on careers advice and also that the strategic and vulnerable subjects committee which HEFCE has should be turned into a much broader committee which would advise on supply and demand for graduate skills. They would pull together (a) what is happening in the system, because that is not well understood, (b) what industry says it thinks the needs and where the shortages are coming up, and (c) the very good destination data which could be much improved if it was done not six months after the end of the year but much later, pull that together in an annual report which then gives good information to both young people, Vice Chancellors and everyone else, as to what the needs are and what is happening. We could do a huge amount to improve that.

Q46 Dr Iddon: When you have been in front of the Select Committees previously, including the S&T Select Committee, you have been quite excited by the rising numbers of people studying science in university. You have just put your finger on it. You have mentioned three subjects: sports science, forensic science and even psychology. The problem is that in some universities when they have been returning figures to you about the number of people studying science in their university they have included those three subjects. When we have been looking at figures coming in from different universities, and indeed from schools as well, it has not been easy to pick out who is studying chemistry and who is studying physics, the core subjects. In a speech you made to the Foundation for Science and Technology recently you said there should be a standardised reporting system. Are you back-tracking on your previous excitement in terms of the rising number of science graduates now?

Lord Sainsbury of Turville: It originated probably appearing before this Committee. Everyone said there is a complete disaster, young people are not doing science and technology and the end of the world has come. As a result of that, I said can I please see what actually the figures are but on a consistent ten year basis, not switching between how many people have graduated or how many people have applied to university but a consistent basis. It took an enormous amount of time and effort to get those figures, which tells you something anyway. Then when we got them it was clear there were rising numbers in spite of what everyone thought. I have to say I thought this was rather interesting because we were all proceeding on the wrong basis. I did always say there were problems in chemistry, engineering and technology but the whole rising numbers you had to take that into account. The Royal Society rightly pointed out that it was coming in these particular subjects. They did more digging on this and they are quite right. That is why in this report we do say there is more of a serious mismatch even though the numbers are rising.

Q47 Dr Iddon: I have been a great advocate of the new syllabuses and recently I have been looking at visiting schools where children have been studying 21st century science and I have been quite impressed. In talking to the children they clearly would like more practical work and the problem with these new syllabuses is they have watered down the amount of practical work children are doing in school now. This week I was lobbied by the Field Studies Council who similarly regret that children are not going out of the school now into the field to study biology, zoology, mineralogy and all the other subjects. What can we do to bring back the excitement that these lines of teaching bring to students and encourage them to study the STEM subjects?

Lord Sainsbury of Turville: This is a problem and it is not absolutely clear what is the cause of this. Everyone seems to agree that actually more practical experiments are what excites kids. My own view has become that probably the most important issue is actually the qualifications of the teachers. There are one or two health and safety issues but I suspect the real issue is about qualification of the teachers. If you have not got people properly qualified in the subject they are teaching, what happens is the bits that go are the bits which make it exciting. If you do not know the subject very well what you do is you get them to learn by rote the text book. What you cut out is any kind of interactive dialogue with the kids because that may reveal that you do not know the answers yourself and you are only five pages ahead of them. You are a bit nervous about experiments and things because you do not understand what is going on. That is part of the problem. There is now some work going on by various science teaching bodies to see what the problem is and if it can be improved, if you can get some ideas from them and use the CPD through the science learning centres to give people more confidence in doing experiments. There is an idea of having one place where you can have all the experimental material on line so teachers can go and get it easily. I think you can improve this quite dramatically but you have to have the qualified people do it.

Q48 Dr Iddon: Is it not part of the problem that the school laboratories are completely out of date and unattractive compared to say the language laboratories which have, on the whole, been kept up to date? We are short of technical support for teachers in schools as well. Is that not part of the problem?

Lord Sainsbury of Turville: The whole building programme in schools is tackling this issue and probably, at the end of the day, that is the right way to tackle it. Almost certainly you could do more on those areas, yes.

Q49 Mr Marsden: As someone who sat on the Standing Committee of the Bill that set up Connexions, and one of those people who said precisely what you have now said, it is music to my ears. I wish it had been listened to a few years earlier. Can I pick up the thrust of what my colleague is saying? You have, quite rightly, placed emphasis on careers advice as a very important element of keeping students in science and going onto science orientated careers. Is there not something that we need to look at in terms of the syllabuses? Maybe one of the reasons why fewer people are either doing science in the first place or then subsequently taking it into a science career is there is not enough connection in the syllabuses sometimes between pure science and applied science. By that I do not mean I want to see the pure science elements watered down but perhaps we should be making more connections. Also in the context of what Brian was also saying, is there not a role for bringing in some of the excitement of people who are entrepreneurs in science and technology and in business actually into the schools to talk to some of the students at the formative ages you are mentioning?

Lord Sainsbury of Turville: We do have a scheme to do that, the Science and Engineering Ambassadors Scheme, which is proving hugely successful. The last count I saw we have 13,000 young people going into schools. I am very keen that that is the level you should do it because that is the level kids can relate to. Retired people going in is not necessarily the obvious way to do this. We have got that. In this area, the overwhelmingly important thing is we have three or four hundred schemes to encourage people to do science and technology but this is very disorganised, very poor value for money, and the real challenge is to get ten streamlined good schemes which everyone unites around. The DCSF are now doing that. They have a very good person called John Holman working on this. You will see we have set down the ten schemes we think should be done. Rather encouragingly, industry is also saying we are getting poor value from all the things we do, can we all work together to support the science learning centres, CPD for teachers, a single big competition with three or four prizes for all schools to go in for, the Science and Engineering Ambassadors Scheme, just ten schemes. The last thing we need is any new schemes; we just need to focus on those and get everyone working together.

Q50 Mr Marsden: I was very interested in a section of your report, section 7.46, where you talk about better awareness of the wide range of worthwhile careers opened up by school STEM subjects leading students in. You said "Improved awareness of the range of careers and the contribution they can make to enhancing human well being into addressing major global challenges would also help to stem the imbalance of participation in STEM subjects by under-representative groups" and you mentioned particularly girls and ethic minority groups. Does that have some syllabus implications, whether at school level or university level? Do we do enough in the context of our syllabuses about the moral ethical dimension of scientific and technological activity? Do we do enough on risk benefit analysis, for example, which, it seems to me, every time you open a paper there is some scare story. There seems to be very little sense of risk benefit analysis either by the writers or by the commentators subsequently. Without wanting to get the science syllabuses woolly, is there not more we need to put in those areas?

Lord Sainsbury of Turville: Having done this for a number of years I come out with a couple of prejudices about it and one is probably less alterations in the curriculum is a good starting point. We change them too often. I am never certain it is the curriculum that is the issue but the teaching of the curriculum that is the issue. Secondly, I think there is a real dilemma here, which is why you get different views about whether 21st century science is right. You have to get a balance between teaching the structure and rigour of scientific knowledge versus relating it all the time to its relevance. If the structure of classes and teaching is around the relevance, then you may lose the understanding of the disciplines of the subject. If you keep teaching bits of chemistry under different relevant subjects, you may lose and make it more difficult for kids to get a basic knowledge of what chemistry is about. You have to get the balance of that right. I think overwhelmingly it is about how it is taught and not about endlessly changing the curriculum.

Q51 Dr Iddon: 21st century science allows teachers to do both because there are specific modules for the depth, and for students who do not want to go into the depth there is the syllabus you mentioned.

Lord Sainsbury of Turville: This is why there is 21st century science is right, with both sides probably feeling that their way of doing it is not being treated as seriously as it should. This is the problem and you have to get the balance right. You may make it more difficult for the kids to understand even though it appears to be more relevant.

Dr Iddon: I should point out that there is even a module on applied science in the 21st century science series of booklets which teachers can select.

Chairman: We are enthusiasts of 21st century science unlike Professor Sykes.

Q52 Dr Blackman-Woods: In the Review you recommend that Research Councils UK streamline its presence into single points of contact in key countries. What would you define as a key country?

Lord Sainsbury of Turville: There are two areas: one is America, which clearly comes out as an absolute key area because we have strong relations with America but we can make them more productive and valuable. Having one point where the research councils are present in the United states would be hugely helpful as well as what we are suggesting, which is research councils together reach agreement with the funding bodies, the National Institute of Health and Science Foundation, so that there is one agreement about how co-operative projects between the two countries are evaluated and you do not have to evaluate them and have double jeopardy. China and India are other places where having one presence from the research councils would be helpful. It is also very helpful in terms of actually the other country understanding that we are doing a lot of things. If you spread it over all research councils acting differently and other bodies acting differently, often you find we are do a lot of research with the country which is not appreciated.

Q53 Dr Blackman-Woods: Are there any drawbacks to that approach? Take America, for example, there might be a lot of research taking place in Silicon Valley but the policy is in Washington. Can you see any drawbacks?

Lord Sainsbury of Turville: No. It is only about research councils working together so that you do not have five or six representatives of different research councils covering the same ground.

Q54 Dr Blackman-Woods: After the USA, the UK research community does a great deal of work with Japan but there is not a recommendation to have a UK office in Japan. Why is that?

Lord Sainsbury of Turville: In terms of research, it actually does not come up as one of the major collaborative partnerships. The point about Japan is it has enormously good skills and incremental innovation but its record of university knowledge transfer and radical innovation is quite poor. We do have projects with them but I would not put it in the same category as America or probably, as a long-term bet, India and China.

Q55 Dr Blackman-Woods: The Review recommended that the Science Bridges scheme be extended to India and China. Why do you see this as so important given there are specific schemes for those particular countries already in existence such as Science Networks and UKIERI?

Lord Sainsbury of Turville: There are two views on this: one is that it should always be done on the basis of individual scientist to individual scientist, and the other, which was the traditional way, is you should put together a fund between the two countries. Usually these funds are rather small sums of money. Politicians love them because they go and visit India and they sign a research fund project. Both sides love this but actually it is very inefficient. You have the whole thing of competition, special evaluation goes on and then of the £100,000, £50,000 goes back to one country and £50,000 goes to the other. If you have really high level science collaboration, both lots of scientists can get the money from their own countries to do it. What you need is the networks between the countries and I think the best networks are, in fact, university to university. We have done enormously well. For example, one of the first was we got links between SET Squared, which is four universities here, with San Diego in America. That is proving hugely successful in getting both science and innovation collaboration between the two universities. That is a very successful way to do it and we should build on it.

Q56 Dr Blackman-Woods: Is it not working against the streamlining process you are arguing elsewhere in this section?

Lord Sainsbury of Turville: No, it probably works for streamlining because you focus on the links between the major players in the two countries and that is where the effort goes and that is much easier to do than lots and lots and small schemes with different universities playing. It is the nature of the world we live in today that there are, in all these countries, hi-tech clusters and what is happening is clusters talk to clusters. You have a cluster at Imperial College which will have big links with Bangalore and the Institute of Science there. That is where you get the creativity and it is probably much more efficient.

Q57 Chairman: Can I finally finish with a couple of very brief questions. DIUS is going to lead on the implementation of your Review. The Prime Minister has accepted it in full. For the Secretary of State to have succeeded in a year's time when we meet him, what would be two things that the department would had to have achieved, or just one thing?

Lord Sainsbury of Turville: It is one thing, which is to implement my report effectively and well.

Q58 Chairman: How do you know if he will have done that? You said they will have an annual report.

Lord Sainsbury of Turville: They have produced an implementation plan and they will probably be published in the spring together with some further policy recommendations. That will be visible for people to see. The back stop is the innovation report which will come out probably in the autumn. That will say to the extent that things are working well and whether the report is being implemented. My real fall-back position is I, from the House of Lords, will ask grumpy questions about whether they have done it or not.

Q59 Chairman: So will we.

Lord Sainsbury of Turville: I should say, because this is where we started from, what I think is enormously encouraging is because we have involved all the different players in the policy process there is a huge amount of momentum and enthusiasm for this in the different areas. The RDAs are very enthusiastic about moving in this direction. The TSB is getting on already and doing lots of things. I do not think there will be much resistance to the recommendations because there is a lot of buy-in.

Q60 Chairman: There is a billion pounds attached to the TSB over the next three years, additional resources into the RDAs, are there any other costs for the implementation of this Review that you think should have been made or are there sufficient resources in the pot to be able to deliver?

Lord Sainsbury of Turville: One always would like more money but if you look at it in terms of what we manage to get in terms of the Comprehensive Spending Review compared to a lot of others areas of government expense, I think this does show there is real support in government for this area. I do not know if there is any area where I think we are asking people to do impossible things with the amount of money they have got. On the contrary, I think there is huge scope by doing things better to get a better result with the small amount of extra money we have got.

Q61 Chairman: An excellent report which is going to be fully implemented, there are no cost problems and, therefore, this should be a success.

Lord Sainsbury of Turville: Yes.

Q62 Chairman: On that positive note, thank you very much.

Lord Sainsbury of Turville: I will miss, in my future life, coming before this Committee. I found we are on the same side and it was always a very enjoyable occasion.