House of COMMONS









Monday 3 November 2008


Evidence heard in Public Questions 185 - 215





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Oral Evidence

Taken before the Innovation, Universities, Science & Skills Committee

on Monday 3 November 2008

Members present

Mr Phil Willis, in the Chair

Mr Tim Boswell

Mr Ian Cawsey

Dr Ian Gibson

Dr Brian Iddon

Mr Gordon Marsden


Witnesses: Lord Drayson of Kensington, a Member of the House of Lords, Minister of State, Department for Innovation, Universities and Skills, and Lord Carter of Barnes, a Member of the House of Lords, Parliamentary Under-Secretary of State, Department for Business, Enterprise & Regulatory Reform, gave evidence.

Q185 Chairman: Could we first of all apologise to our second group of witnesses this afternoon who are here as part of the engineering inquiry and the particular case we are looking at is plastic electronics engineering. We did have a vote halfway through the last session which delayed us but thank you very much indeed for your patience. We welcome this afternoon in his new capacity Lord Drayson of Kensington, the Minister of State at the Department for Innovation, Universities and Skills. We welcome you to your post, and I say that very genuinely on behalf of the whole Committee. We are very excited about your contribution particularly to the science agenda, and hopefully we will be able to talk to you about that in the future. We also welcome Lord Carter of Barnes, the Parliamentary Under-Secretary of State for the Department for Business, Enterprise & Regulatory Reform, who in fact has a foot in a number of ministries as part of his particular post. You are very welcome to join the Committee too, Lord Carter. I think it would be wrong of me, Lord Drayson, not to say that yesterday was a momentous day for engineering a long way away and I am pretty sure that you would have preferred probably to be in Brazil than in England, and I wondered if you would like to put on record a brief comment about the success of our Formula One engineering team yesterday.

Lord Drayson of Kensington: Thank you very much, Chairman. I am delighted to do so. I think we all went through several lifetimes in that race, but it is absolutely wonderful to have a British world champion in a sport, particularly in a sport where Britain leads the world. We are the leaders in motor sport and I think Lewis Hamilton is an absolute inspiration, his talent but also the way in which he and his family have developed that talent and the way he is such a wonderful ambassador for sport and such a role model for young people - and the way he took Glock on that last corner was brilliant.

Q186 Chairman: The fact that Glock was going backwards at the time helped. Lord Drayson, the origin of our interest in plastic electronics was Professor David King who, in his valedictory session with us, made it quite clear that plastic electronics technologies had a real chance to be a disruptive technology which would challenge silicon, which would be able not only to revolutionise certain aspects of technology but also be a huge winner for UK PLC. Do you agree with that?

Lord Drayson of Kensington: Yes, I do. I think it is an example of, as you say, Chairman, a technology which has the potential to make a very significant contribution within an industry which is in itself growing, to be a disruptive technology and one where the United Kingdom has a lead position in terms of the way in which the Government over quite a considerable period of time has supported the development of intellectual property. The key for us is to make sure that we turn that intellectual property strength and research strength into wealth and jobs in the United Kingdom.

Q187 Mr Marsden: I was interested to hear you give that endorsement, Lord Drayson, because it is quite true that when Professor King spoke before the Committee in December last year he was very enthusiastic about plastic electronics, but in our first evidence session Doctor Ian French of Philips said, "I think plastic electronics has potential in relatively small areas short term; and these areas would have to be very successful before it could be extended to much larger areas". What independent assessment have you made in government of the real potential of these things, or was the former Scientific Adviser just being over-enthusiastic when he came before us?

Lord Drayson of Kensington: I think when one looks at the assessments that have been made of the potential size of the market one always has to be very cautious. It is very difficult to predict the future size of the market and there has been wide variation in those estimates, some of the order of 15 billion. The best evidence that one can take for the independent assessment of this area of technology having a high impact is the fact that it has been successful in raising really quite significant amounts of venture capital funding. The professor's own company, for example, raising upwards of 200 million in quite challenging market conditions I think is a pretty strong validation that the venture capital community regards this as an area of really quite high potential in the future.

Q188 Mr Marsden: That has been up to now for the future, but, given the difficult economic times and given presumably that the Government is not going to want to bankroll this innovation entirely, what is the scope for the City of London to carry on making that sort of commitment?

Lord Drayson of Kensington: These are really challenging times for business generally, clearly, but if one looks at the opportunity for hi-tech, high-growth businesses in the context that those are the businesses which are going to deliver the growth in the future, it is very important both for the private and the public sector not to eat the seedcorn during a time of difficulty. The maintenance of investment in research and development through this period is going to be very important. I remember when I was running a science-based business through the last recession. You have to do two things. You have to focus on surviving but you also have to focus on making sure that you are in a strong position three years out when things will undoubtedly be in an upturn. The very fact that the financial sector is going through some really difficult times at the moment and there will be restructuring of funds means that I am actually quite optimistic that there will be a renewed look at venture capital investments as an alternative for hedge funds. I have already seen some anecdotal evidence that the way in which large-scale private equity management buyouts, the way in which hedge funds have taken such a large proportion of investors' money, have led to not enough being invested in venture capital in early stage development capital. Given that those opportunities no longer exist with the attraction that they had, I think that we can expect people to be looking at those again and that is why I am really quite optimistic.

Q189 Chairman: What is Government going to do to support that? Is it going to incentivise venture capitalists to get engaged at a time of downturn? That is the fundamental question.

Lord Drayson of Kensington: There is the need for the Government to look at the existing schemes that we have, to support investment in early stage high potential businesses and to look at the opportunity for increasing that support in partnership with industry during this period. This is a time when the risk/return equation can be changed, I think, in favour of these businesses, and we have to look quite imaginatively at our role in doing that. The Government already has a number of schemes which have proven to be successful, the small loan guarantee scheme, for example, and the enterprise investment schemes. We need to look at all of these and see whether or not we can do more to have an impact, particularly over the next year. The next six to nine months is going to be very important indeed for SMEs. The opportunity is there to work with the financial institutions to ensure that, particularly in the 200,000 to 2 million range of funding, we make sure that adequate capital is available.

Q190 Chairman: The Council for Science and Technology recommended earlier this year that the department should conduct a value chain analysis of the plastic electronics sector. Has that happened?

Lord Drayson of Kensington: That recommendation is something which we intend to follow up. Now that we have seen the example of, in particular, Plastic Logic getting to manufacturing stage, we are at that very important stage with this industry where the supply chain and the geographical location of that supply chain is going to have a big impact on the generation of a cluster in Europe, and so therefore we need to analyse what we can do to facilitate development of such a cluster around the centre which we clearly have here.

Q191 Chairman: When will this happen then?

Lord Drayson of Kensington: I do not have a timescale for the Committee today.

Q192 Chairman: Could you let us know?

Lord Drayson of Kensington: I can write back to the Committee and provide you with fuller details.

Q193 Chairman: Picking up from Gordon Marsden's point, we saw liquid crystal and amorphous silicon industry move abroad despite the fact that the inventions, the breakthroughs in science, actually occurred here. The question is, and I think this was the point that David King was getting at, why should we simply have the great ideas which are then capitalised and taken abroad rather than have major manufacturing of these things - and plastic electronics is a classic example - in the UK? What are we going to do about that?

Lord Drayson of Kensington: The Government over the last ten years in my own experience as a science entrepreneur has done a really excellent job to transform the landscape around the commercialisation of intellectual property out of the universities and we have seen the creation of many more spin-out companies. That is a success; that is going well. We need to increase our focus now on how we make sure that a greater proportion of those spin-out companies grow to be world-class players. What we are seeing is a relatively recent change whereby it is beginning to be understood by innovators and entrepreneurs that a lot of these technologies, when they move from the laboratory to their first decent-sized manufacturing plant, require the skills of the late stage development to be right next door because the manufacturing itself is really quite uncertain. What we have seen is that other countries in competition with the United Kingdom have been really quite aggressive - and I saw it myself in the Ministry of Defence in aerospace - in seeing that they can backwards integrate by attracting to their particular country the factory for the next generation of manufacturing and then suck towards that supply chain the R&D. We need to be aware of that, the Government is aware of that, and we need to look at interventions to support those industries where we regard there to be -----

Q194 Chairman: The two main companies in this area that you are talking about have both gone to East Germany, to Dresden, so we are losing that battle already before we start.

Lord Drayson of Kensington: I think that we need to take those examples as warning signs. In the biotechnology industry we saw this happen with monoclonal antibodies. This is something we just need to put a stop to.

Q195 Dr Gibson: One of the drivers of innovation you would have to consider I guess is public procurement. How important is that in your opinion? You have seen the summary, I guess. How important is it in driving innovation forward, in this sector particularly?

Lord Drayson of Kensington: I think the fact that the Government is spending approximately 160 billion a year gives it an enormous opportunity to make a positive difference. The recent announcement by the Government in response to the economic situation to change the terms of business from 30 days to ten days is a reflection, I think, of the power that government procurement can have. The challenge here from my experience in the Ministry of Defence is that using government procurement to strategically develop the science base and innovation will require the civil servants responsible for that procurement to take risk and so there will always be a balance between the amount of risk you are prepared to take by trying a new innovation and the criticism which you may be subjected to if that risk-taking in a proportion of times leads to greater cost and more delays. I think what we need to do is to use the procurement budget and we need to learn the lessons which I think have been successfully applied in certain departments for this Government and apply a best practice across government. We are doing that. We are implementing innovative procurement plans from my department to do that to help departments to think strategically. We are also reforming the process by which we encourage those departments to use their procurement budgets to support SMEs and to support innovation. We are doing this but we need to do it on a bigger scale to have more impact than we have had to date. The SBRI scheme is an example where we have gone so far; we are now reforming that and it is part of my job to make sure the implementation of that is effective.

Q196 Dr Gibson: You will know, of course, of the success this has engendered in the United States, the generation of Silicon Valley and the fact that public procurement there has been a major factor. Millions of dollars have been put in there in terms of risk. They are prepared to take the risk, but our civil servants - most of us, I guess - are not prepared to take a risk with unproven technologies. It has to be pretty safe. Is that the British way?

Lord Drayson of Kensington: I do not think it is the British way. I think it is about putting in place the structures to allow civil servants to be able to make informed judgments to lead to better outcomes. We have great examples of where they have done this, things that have been done within the Department of Health, things that have been done within the Ministry of Defence where we have operated pilot schemes. An example in the Ministry of Defence was the Grand Challenge scheme where we put out a challenge for a military capability that we needed and we found that the scientific community responded brilliantly to that competition for ideas. These are schemes which we have tried as pilots. They have worked really well. We need to apply those across other government departments.

Q197 Dr Gibson: Do you think there are British companies that have not got a clue how to go forward to get public procurement? They sit there waiting for the phone to ring rather than getting out there and being Californian, I guess.

Lord Drayson of Kensington: We need to do as much as we can to help particularly SMEs to understand the process of government procurement and the necessary checks and balances that there have to be in the way in which public money is handled. We have seen good examples in certain departments where they have done that, but I think we have more to do in terms of making sure that across government this best practice is used.

Q198 Dr Gibson: How about the SBRI schemes that we have initiated after the American model in health and defence? How are they progressing? How has anybody's life changed in this country because of new things that have come along?

Lord Drayson of Kensington: There are many examples of improvements to the quality of life through innovation, particularly in healthcare. That is another example of an industry where the UK is a world leader. We have reviewed the SBRI. We concluded that, although on the face of it it was showing that it was hitting its targets whereby departments were spending more than 2.5 per cent of their budget supporting these sorts of projects, more can be done to make them more strategically connected to the strategic aims the Government has in addressing these key challenges. This is what we intend to do; this is what we are planning to do now, put a budget of about 100 million behind this whereby we are saying that we know we have got these challenges relating to an ageing population, relating to climate change. How can we help the departments when they are making decisions, for example in transport, in leveraging the investment that the Government has already decided to make, 100 million, for example, in low carbon vehicles, and that in the procurement decisions they are making in those departments, for example, when they go and buy vans for delivery, they are doing so in a way which supports innovation, for example, buying electric vans rather than diesel? These are examples where I think we can do more to make sure that strategic top-level decisions which are getting significant investment are followed through in the procurement practices in each of the departments.

Q199 Dr Gibson: Would you say that we were going to catch the Americans up with this kind of attitude to make things happen? Is that your ambition? The pieces are in place; you have just got to make it happen?

Lord Drayson of Kensington: I think we need to be ambitious and realistic together. Having had the opportunity over the past year to spend a lot of time in America and having myself built a company in Silicon Valley, I know the power that exists over there, but venture capital investors in Silicon Valley told me this summer that they recognise that whereas in the past they could literally go out of their office and on their doorstep was the science around the biosciences, the science around IT, the coming wave of technologies are not on their doorstep; a lot of them are in Europe, so therefore those investors have said to me that they need to go out into Europe, they need to develop links, and therefore I think this is an opportunity for the United Kingdom, I really do, to be this innovation bridge between Europe and the United States. The fact that we have this Anglo-Saxon business model is a real strength. We have very strong financial and public markets in terms of the way in which they are set up to foster the innovation process in a way that certain continental markets do not, and so I do think it is possible for us to see the next few years as an opportunity, providing that we are strategic in focusing on those areas where the UK really can develop a significant position.

The Committee suspended from 5.37 pm to 5.48 pm for a division in the House

Q200 Chairman: Before we were excitingly taken away to vote on this Bill, Dr Gibson was exploring the issue of procurement. You have given us the Government's line. I wonder if we could now talk about some real actions which are going to change things. If you look at the SBRI funding in the United States, witness after witness has told the inquiry, both in terms of oral witnesses and written witnesses, about the ability of US companies to feed from the huge amounts of resource which are available to companies. If you take the Universal Display Corporation, they repeatedly got grants of between $0.5 million and $1.5 million in order to be able to develop their technologies, and it is that that has enabled them to be ahead of the game. Can you point to a single company over the last ten years that the Government through procurement has made develop from a small spin-out into a major corporation, just one?

Lord Drayson of Kensington: Yes, my company. Powderjet was an example of exactly that, where the way in which the Government supported the recognition of the importance of the biopharmaceutical area in this country, both in terms of its ability to make a positive impact in terms of healthcare and the fact that in terms of the budget being around vaccine R&D, vaccine procurement, Powderjet became the world's sixth largest vaccine company after ten years from spin-out from Oxford University. I can give you that one particular example.

Q201 Chairman: Could you give me another?

Lord Drayson of Kensington: If it would be helpful to the Committee what I could do is write to the Committee and give examples, because I do believe that there are real examples, from a number of different sectors. I spoke about the sector which I know about in terms of my own experience and my own business, but I know from a defence point of view when I was Minister for Procurement in Defence that the Government's willingness to support innovation within defence was built upon the fact that there was a clear recognition of the link between military capability and investment in all R&D and innovation. The Chief Scientific Adviser from the MoD looked at the data and was able to correlate the impact that all R&D had had and was able to conclude that the military capability that we enjoy today was a function of the investment that we had made two decades ago. We do not have that data in other areas because we do not have that clarity of military capability.

Q202 Chairman: I think, to be fair, that you would except that the MoD is a slightly different beast from, if you like, plastic electronics, which is entirely in the private sector. The point that I am trying to make here is that Plastic Logic, for instance, which is one of the big spin-out companies from Cambridge, now has its headquarters in the United States, presumably because it wants to get into the action in terms of US procurement budgets. Do you feel that we are active enough in this particular space in order to be able to incentivise businesses to get government procurement to grow the business and to become world beaters?

Lord Drayson of Kensington: The way that the Government has identified the need to invest significant amounts of money into the stage of the development of a business, that very important stage of getting from really quite a small organisation to a significant organisation, depends upon those important initial orders and that important support for the late stage development of manufacturing. That has been recognised through the setting up of the Technology Strategy Board, a 700 million budget, on the basis of investment to identify those strategic areas that I mentioned earlier. In terms of plastic electronics, unlike, for example, low carbon vehicles, which is a need that society has clearly identified, at the moment with plastic electronics we are dealing with an enabling technology. It is not clear at the moment what product areas, what market areas, plastic electronics is likely to have the biggest impact on, so it is not possible for the Government to say today, "This is the area we think the technology could have an impact on", and therefore I think it is right the way in which the Technology Strategy Board has supported this area of plastic electronics with an investment of about 10 million a year because it is not clear what those key markets are going to be.

Q203 Chairman: Can I just follow that through with you? We were in Japan two weeks ago and Sony, Toshiba, Panasonic, Sharp are all involved in looking at organic LEDs sponsored with something like a 20 million or $30 million budget from the Japanese government, which is for prior development. It is this valley-of-death stuff, and then they can compete on product afterwards, and yet, when I visited PETeC up in Sedgefield during the summer, this is again a very exciting development, with TSB putting money in, the Government putting money in, the RDA putting money in, but if in five years' time they are not self-sufficient there is no more money from the Government. That flies in the face of what you are saying.

Lord Drayson of Kensington: I think you have identified the need for support to businesses to be of a scale which enables us to compete with other countries by being extremely aggressive in identifying these sectors and then targeting the next stage of development. We have seen this in various industries over the years. It is clearly an issue which is very alive in this particular emerging industry. I think that the initiatives that DIUS and BERR have put in place have taken us so far. What we need to do is look at what we can do to address that competitive situation which is very real and I accept exists.

Q204 Dr Gibson: I am just writing a piece about what use science and technology has been in the Ministry of Defence with all the money that has gone in and so on. Could there not be another way of doing that, that the government agencies put aside, like the Ministry of Defence, 2.5 per cent of their research and development budgets like they do in the States to go back into a great big pot which can go to the small businesses? It is there and you are not grappling and fighting other groups to get that money. You have actually got it earmarked from the Ministry of Defence and others that benefit from it.

Lord Carter of Barnes: I very much defer to my ministerial colleague. This is his sector, but, looking in on this from the Department for Business and from my own sector, which is related because in some ways it is a pump-primer for technology innovation, it seems to me that much of your line of questioning is both timely and all in the same area. Our thesis is that there has been a significant and consistent development over the last decade particularly around the excitement with which educational establishments have embraced intellectual property and the commercialisation of intellectual property. There is then the next stage question, which is the scale of commercialisation and how you achieve that. From a practical perspective we are the moment have a number of leaders. I would not describe all those leaders are small but they are small by comparison with some of the international comparisons that you make. Nevertheless, some of them have got quite some scale behind them. In health or, if you want to look at it from an industrial point of view, in pharmaceuticals and in defence, the role of government at scale and of government as a customer at scale is very different from almost every other area of activity. The new Secretary of State in our department, Lord Mandelson, has made it clear in his Action Programme for Business that one of the things that he rightly wants to look at is what else should we do as we look to develop other strong industrial sectors in order to give ourselves more scale and more capability in these areas. The report is very timely and the line of questioning I think is very timely. Are we at a tipping point where we do need to be slightly more adventurous in the way in which we use procurement to allow us to go from where we undoubtedly at the moment to the next level?

Q205 Dr Gibson: Do you think the brightest brains are going into that kind of enterprise or do they stay doing really interesting blue skies research?

Lord Carter of Barnes: My own view is that that has been a big change over the last ten years. I do think in that area, or certainly in related areas, in hi-tech, digital technology businesses, we have, as Paul was saying, a real international competitive advantage and some outstanding examples of excellence across the piste, not just in plastics or plastics technology but in lots of other related areas. I think there is an appetite there. I think the question is what can we do to the incentive mechanisms we have got to encourage people to take small to medium-sized ideas to scale businesses?

Q206 Dr Gibson: But I have heard these ideas being talked about in this country for at least 15 years. David Sainsbury was in your position, the same story, the same arguments, and yet here we are still trying to do it. What is missing?

Lord Drayson of Kensington: I think there has been real progress but that progress has been in parts of government. That though gives us the confidence about what works in government procurement to address the innovation agenda and to support the science base. The fact that I have been charged with setting up a new Cabinet sub-committee for science innovation, which has as part of its responsibility driving through this procurement agenda and using procurement in this way that the Committee has asked, I think is a recognition of the opportunity to make a bigger difference but also to do so in a way which learns from what works. What we have seen from the SBRI is that it is just not effective enough to give a government department a target of percentage. What you need to do is inspire both the civil servants within the Department but also industry to tackle a clearly defined problem. The answer is to identify those projects in those areas within each of the government departments where they are part of the bigger picture, addressing, for example, the impact of ageing, which has an effect on all government departments, or issues relating to climate change, and then to target the scheme to use innovative procurement in that department and hold those departments to account for their relative performance in carrying out innovative procurement across the piste.

Dr Gibson: I am very interested in what you say about civil servants, and I will shut up at this point, because some of my best friends are civil servants. I know quite a lot and they say they come up with very bright ideas -----

Chairman: Name him.

Q207 Dr Gibson: ----- no, her, actually, and they get bounced because the ministers in the departments do not want to take them on. They spend an awful lot of time, these bright people, coming up with ideas, producing documents, and they just lie there because it starts to get into that maelstrom of argument between departments and so on, "My department is bigger and more important at the minute than yours". I do not know what Gus O'Donnell says in public; I know what he says in private, but a lot of young people are getting a bit miffed being in the Civil Service because they are coming up with brilliant ideas, they want to do it, but they get bounced. Is that true, do you think? Do you talk to civil servants about it? You may will them to do it but they find the whole structure within their departments inhibitory. Is that hypothesis true?

Lord Carter of Barnes: I defer to your knowledge and experience of dealing with civil servants. I certainly talk to civil servants a lot of the time but also it relates to what can we do going forward rather than historically, and you know this far better than I but my sense is that there have been a number of significant legacies, certainly from David Sainsbury's period, and one of those has been to get us to the stage we are at now in terms of the field of opportunity there is. If there is a silver lining associated with this current economic turbulence and international and domestic circumstance it is that there is an appetite across government - and I would include civil servants in that and certainly politicians - to look at other individual areas, other individual opportunities and see how we best align incentives, government involvement, government procurement and encouragement to allow us to take maximum advantage of that, and that is what we are seeking to do. At the same time as Paul is setting up a Cabinet committee I am trying to produce a report, the Digital Britain report. There are 14 projects working across government in eight government departments, all of which are trying to create a coherent framework for the digitalisation of the economy. If we could just align ourselves in a coherent way there that would be a significant generator of procurement activities from the public and the private sector. I sense with the ideas that you refer to, whether they are coming from civil servants or other people, that there is an appetite to listen to them right here and right now.

Chairman: I have got an appetite to listen to Dr Brian Iddon.

Q208 Dr Iddon: One of the sad things about this inquiry was to listen to the reasons why Plastic Logic went to Dresden, and the key factor seemed to be a "can do" attitude among the authorities in the city of Dresden. From approach and agreement in Dresden to a production plant took 18 months. It is no secret that they considered five sites, of which one was in South Wales. Do you think we have learned from that experience and if a similar company wanted to stay in Britain with a British discovery out of all the discoveries that came out of Cambridge do you think we could do it now in any region of our country, having learned about what has happened to Plastic Logic?

Lord Drayson of Kensington: I think we need to recognise that we do have an issue in this country culturally, which is that our real academic centres for science and engineering are often in parts of the country where those people not involved in those areas do not want anyone building a factory. I know from my own experience working in the bioscience sector that it was extremely difficult to persuade local authorities that the creation of a new hi-tech manufacturing facility for vaccines was something that they wanted to have in Oxfordshire. We need to recognise as a country that if we are going to have these high-growth industries of the future that often you need to co-locate the late stage development scientists with the early stage manufacturing and therefore we need to look again, I think, at the way in which we communicate to people the reality of modern manufacturing. We can build, we can be competitive in this country in the most hi-tech manufacturing in a clean way. I think there are plenty of good examples. I point to the Rolls Royce factory down in Goodwood as an example of a very modern factory which is a thing of beauty in itself, and that is not just me speaking as a manufacturing engineer. I do not think this is an easy issue to solve because it does boil down to the local attitudes within an environment, so we need particularly to look at the area around Cambridge, the area around Oxford and in London where we do have these centres of scientific and engineering experts.

Q209 Dr Iddon: In talking to the leading industrialists, particularly in Japan but also in China, they have a high on Britain as a possible manufacturing centre for the whole of Europe and perhaps beyond, companies like Hitachi and Sony and so on. They say they are attracted by the products that we produce in our universities and by the number of inventions, but, of course, set aside from that are the tax incentives and other incentives like the city of Dresden has offered Plastic Logic. Do you think we are ahead of the game in attracting companies into this country and, if not, how can we bring companies like Sony into the country?

Lord Drayson of Kensington: I will turn to my colleague here, but the data I think show that the United Kingdom has garnered a larger share than anyone in terms of inward investment within the United Kingdom. If you focus on a particular type though of inward investment, the area on which the Committee is rightly focusing is the area of investment for the early stage manufacturing of these big growth industries of the future. We need to recognise that other countries, such as Germany, Singapore I know within biopharmaceuticals, Ireland in the past, have put really quite enormous sums of money into attracting these factories to their region. I am optimistic because, as you say, the United Kingdom has what all of these global companies want. It is the knowhow, it is the skills of the scientists and the engineers. What we need to do is make sure that we are leveraging that most effectively. I also think one thing which the Committee has not yet touched upon which I think is very important indeed is to make sure that internationally we have a level playing field such that when our hi-tech companies get to a point where they are publicly traded it is as easy for them to acquire a foreign based company, for example, in Germany as it is for a German company to acquire a UK based hi-tech company. It has not been that up to now. It is next to impossible for a UK company to acquire a German company because of their capital structure and the way their markets operate. I am not saying we should go into protectionism but we need to make sure that other markets are as open as our market such that our companies can grow by acquisition as much as theirs can.

Q210 Dr Iddon: Last October a company called OLED-T that was active in the plastic electronics field unfortunately had to go into liquidation because they were unable to access capital to take them through what this Committee calls the death valley from a good idea into a productive mode. Do you think that we have recognised plastic electronics as a rapidly developing area and supported it early enough? I guess the question I am really asking is, do we have a UK strategy for plastic electronics or is it something we have just ignored and let bypass us?

Lord Carter of Barnes: I cannot comment on the specifics of the particular company you refer to but my sense is yes, we do have a strategy both for the category and for some of the specific opportunities within it. You will have seen the department's publication from just over a year ago which laid out some of the charges and the obstacles. To slightly elide your last and that question, I think the evidence would bear out that we are as a country competitive in an attractiveness for inward investment sense globally, that for many of those large-scale international players we have the smarts and the skills, and, let us not forget, the legal, intellectual property, rule of law, flexible labour market environments, all of which are part and parcel of this. Having said all of that, there are going to be a lot of countries around the world, particularly as a result of what has happened to the financial markets, looking to gain competitive advantage in these new areas. The Technology Strategy Board in its new iteration again is probably the nearest thing to a determined UK strategy in this field. My sense is that that could be sharpened even further. It is somewhere between interesting and conspicuous. If you look at the five platforms they have chosen, most of those are ones where you have got government as a specific customer or potential procurer, and there is a question about how much more commercial they can be in their interest areas. All of these are pointing to a similar direction. As I say, the objective of the Department for Business is to take the early day work that was done in this, the work that was done on the manufacturing strategy, and pull that together in the Action Programme for Business and see what more we can do in order to build on the attractiveness that we already have. I would say this but I do think there is a connection to the work we are also doing in Digital Britain for many of the companies, particularly the things you refer to. One of the other things that attracts them to this market is that we are significantly ahead on digital television, mobile technology, wireless technologies, wireless applications, personal mobile display, all of which use an awful lot of the technologies that these companies are manufacturing for, so making us an attractive and vibrant market at consumer and individual retail points I think is also part and parcel of the same strategy.

Q211 Mr Cawsey: As we have done various inquiries in different sectors we have looked at, all roads seem to lead to Rome to me, and that is that if we are looking at cutting edge technologies and new manufacturing we will end up being worried about whether we have got the people with the skills and the training to move them forward in this country. There is concern that the UK is not training sufficient engineers to support the plastic electronics sector, and indeed, to go before that, there is more concern that the quality of applicants for graduate degrees in the disciplines that are relevant to the sector are insufficient in terms of both number and quality. I wonder what the Government is going to do to ensure that we have the right number of engineers and, more importantly, we have people taking graduate degrees in the relevant disciplines.

Lord Drayson of Kensington: Chairman, I think the Committee is rightly focused on a central challenge that faces not just the United Kingdom but most western countries. It is a problem that is faced, for example, by the United States, in that for many reasons not enough young people are choosing to study the stem science, engineering, maths subjects at school, not enough are taking those through such that they have the opportunity to become qualified to be scientists and engineers, and what we face are some really quite important shortages. This is recognised by the Government. The Government has put in place a number of actions at various levels. The Sector Skills Council I think is a very good example where it has identified those particular skills that industry feels it needs. A lot of effort has gone into recruiting more teachers into schools who have been qualified in the sciences because we know that that ability to enthuse is greatly enhanced by having a background in the subject itself. One of the things which I think has come out over the past year is that we have seen the data start to show that those measures that we have taken in schools and education have started to have an effect. We have started to see the early signs of an uptake in young people choosing these subjects but we need to do more. Our research this year has told us when we did a public attitude survey that young people do regard the teaching of sciences and maths at school as extremely important, they do regard them as well taught, they do enjoy learning them by and large. What is missing, which is really striking, is that young people do not understand how that translates into an effect on their potential careers and their parents do not understand. The failure is a failure by us to communicate to young people how, by studying these subjects, you have these opportunities open to you. This is something which I am very focused on in taking up my post. It is about providing more clarity to young people, setting out a vision for them where they can understand what they can do with their careers. It is about improving careers advice through education, and it is about encouraging industry. It is a job for both the private and the public sector to do a better job of inspiring and communicating how you can have an absolutely wonderful life; you can really change the world by doing this stuff, and making it clearer to young people that the hard work that is required to follow your sciences through school, to then go on to university and do some really quite tough subjects, is worth it, and to persuade parents that supporting their children to do their maths homework and so forth is worth it because the career opportunities that are open to them are really magnificent, which they are. We are taking action in this area. We recognise the problem. We are seeing it is having effects, we are seeing it is working. What we also have to do is use the opportunity which exists because of the difficult economic circumstances. The Government is implementing measures to try and attract those people who are qualified in the stem subjects who went into the financial services sector and now are thinking, "What do I do with my life now?" to come back to science, to think about teaching physics within schools, to think about going back and doing that PhD which you decided not to do after your degree, to think about starting up a science-based business. The initial meetings which have been held, roadshows within cities, have been successful. This is something which we are going to roll out.

Q212 Mr Cawsey: I was interested in your point that it is not just an issue in the UK, and I am sure you are right in that, but do you not think there is a cultural problem in the UK inasmuch as engineering is seen as an oily rag sort of profession and not the same as accountancy and law or any of the other things that talented young people can go into? I say that because I was very taken by a session we did some time ago where somebody said that some young people had been surveyed and asked to name a famous British engineer and the most popular one was Kevin Webster, who is the mechanic on Coronation Street. Does that not show that there is this enormous gulf between what we want young people to aspire to and their very poor knowledge of exactly what these professions are?

Lord Carter of Barnes: The last time I heard someone ask that question the research came back with Bob the Builder, so it has moved up a bit. I think you touch on a very interesting cultural point. Again, if you look at it constructively, although it still validates your point, we have a highly successful service industry and an awful lot of it is a discussion about product technologies and product businesses and they are different. I do not think it is an either/or; I do not think anyone would want to trade one for t'other. We unquestionably have great success in the service industries. Indeed, television production is one of our great successes. Let us not knock Coronation Street. It is an enormously successful business as well as an enormously successful programme. The question is how do you align the curriculum and the employment incentives and the routes to success and scale for businesses so we have an equally developed culture of product obsession? Some of that I do think goes back to my colleague's comment about routes to exit for businesses. Part of the reason when you go to some of these other countries where you do have businesses built on an obsession around products rather than around necessarily the financial matrix is that it creates a culture which attracts people who themselves seek reward and satisfaction from building and innovating great new products. That is the next stage of development in this area but it is not, I do not think, at the expense of the service industries. I think it is about doing both side by side.

Lord Drayson of Kensington: Chairman, to use the example that you raised at the beginning, I think that if we take Lewis Hamilton and motor sport, we saw on Sunday the tremendous job that he did as the driver, but for him there are several hundred people who are the engineering back-up. You saw him talking to his race engineer and for those people watching it it needs to be pointed out to them that that was someone who was only in their twenties who has a very glamorous life, flying round the world, and is able to do that job advising Lewis about how to get the best out of the car because of what he studied at school, what he did at university and what he has gone on to do. We do have an image problem which we need to address. The problem is that people just do not understand how brilliant modern engineering really is. I see it as a personal mission of mine - I trained as an engineer - to be a champion for the engineering and science community both within government and outside and to really do something about this because it is a misunderstanding. From my own personal experience I have had an absolutely fascinating, exciting and rewarding life because I did maths, physics and chemistry A-levels and I went on to study engineering at university and then did a PhD and then went into business. I could not have done those businesses if I had not done all of that beforehand. We need to make that clear to young people.

Q213 Mr Cawsey: I agree with that. Just to move on to another aspect of training skills in this sector, I found it quite interesting that some of the firms that have given evidence to us say that as well as making sure they have got people who are trained to do the work and the research and all the rest, talking about mainly doing a lot of manufacturing, the other thing that is lacking is often straightforward management training. In other words, you train people to become an expert in whatever form of engineering it is they want to do but you want them then to be successful within the companies as well but they are not trained for the basic management techniques that any company will need to be successful. Is that an issue that the Government should help set the agenda on or is that really for industry itself to sort out?

Lord Drayson of Kensington: I think that is an issue that the Government can make a big contribution to. I think that the CASE awards, for example, for PhD students, are a great model because doing a PhD means you are effectively your own boss for the first time in your life as a researcher. It is a great training ground doing the right sort of applied research for people to find out whether they would be happy being an entrepreneur. We have seen very effective models for spin-out companies where it has been a professor and a post-doc. The professor has worked with the post-doc to create new intellectual property but the professor has stayed as an academic and carried on teaching while the post-doc has then transferred to be the first managing director of the spin-out company, and with the right training and the right support they can go on to be very successful. You have to have that central focus for the science first and then train the management experience on top of it, and I think we have got the right focus in terms of the balance between the two.

Q214 Dr Gibson: How do you compare with MIT, for example, because we tried to recreate the MIT at Cambridge University, if you remember?

Lord Drayson of Kensington: I think that things like the Judge School have been really positive initiatives. We need to recognise that in some of these areas we are ten years behind the United States and that just the scale effect does take some time to get going. We certainly saw that within the biosciences, for example. I think initiatives like the one you mentioned have been good ones.

Chairman: On that note, and given that there is another vote imminent, could I thank very much indeed yourself, Lord Drayson, and Lord Carter, for coming before us this afternoon. We have very much enjoyed having you both as witnesses and we apologise for the disruption halfway through.