Examination of Witnesses (Questions 160-171)
NESTA
2 APRIL 2008
Q160 Chairman: Is it the Treasury
or BERR?
Mr Halkett: It was a budget paper
in the end.
Q161 Mr Wright: What difference has
the establishment of the Technology Strategy Board made? How would
you rate its performance thus far?
Mr Halkett: The Technology Strategy
Board potentially forms a very important focus for technology-based
innovation in the UK. It has a big agenda ahead of it. It picked
up something like 26 out of the 72 recommendations in the Sainsbury
Review; it has more out of both the Enterprise Strategy and the
Innovation Nationwide paper. It has recruited a good quality team
and I know that they are working on their strategy now. The crucial
point will be when we hear the Technology Strategy Board say "no"
to certain things. At the moment, it seems to be the answer to
everybody's prayers. When the strategy comes out in April, it
will be important to see what is in it and what is not in it.
It has the potential to be an important contributor for the UK.
Q162 Mr Wright: You have stressed
that innovation works in very different ways in different sectors.
Does it therefore make sense to have an innovation strategy or,
for that matter, a Department for Innovation?
Mr Halkett: I think it does. There
are different ways of thinking about where you put innovation
in government. If you start thinking about the role of regulation
and standards, enterprise and skills and you end up suddenly with
a department of government centred on innovation. That does not
really work. I think that having a Department for Innovation,
Universities and Skills is a good structure for the time being.
Let us see how we go. We welcomed it when it appeared and that
is still our position. We think that bringing those three areas
together makes a lot of sense. I certainly think it makes sense
that you need a central champion for innovation at Cabinet level
in government to give those other areas a fighting chance of developing
pro-innovation policy across the board.
Q163 Mr Wright: The Innovation
Gap suggests that policy interventions to support innovation
are largely the same the world over. The report suggests an approach
more tailored to the UK's strengths. What would be the key features
of this particular approach?
Mr Halkett: A number of the strides
that have been made in Innovation Nation are focused on the rest
of the economy and thinking about the types of innovation that
are more important there, particularly demand-led and the role
of open innovation and looking beyond science. If we are looking
at the strength of the UK economy, a lot of it is in our services
industries, in our high quality research base and the skill levels
of our population. If we think from that upwards, then we will
end up with quite a different shape of innovation policy perhaps
than we might have had in the past.
Q164 Mr Wright: Turning to tax credits
now, you suggest that the innovation tax credit would probably
be the way forward. How would that differ from the research and
development tax credits?
Mr Halkett: When we are playing
with major instruments of fiscal policy, we should always take
our time. We are carefully developing any proposals that we would
like to make to change any tax credit, because they really do
change behaviour, as we understand. We have already seen some
incremental improvements here. There was a court case in 2006
which Nissan won against HMRC to include design costs in automotive
manufacture, essentially as part of their research and development.
Looking around, it probably makes sense to all of us that that
would essentially be the research and development that matters
to that industry. We are beginning to see occasional extensions.
As we understand better the innovation that matters, the different
sectors, then we will be able to make specific recommendations
for extension. Again, we have to be very careful with major instruments
of national fiscal policy because small tweaks can have major
implications and potentially unintended consequences.
Q165 Mr Wright: Is investing in science,
engineering and technology skills the best way to promote innovation
and high value economic activity within the UK?
Mr Halkett: I would not say it
is the best. It is a good and important way, but "best"
would probably give it more credit than it deserves. Looking at
the skills agenda, stem skills, science technology, engineering
and maths are important; they are necessary but not sufficient.
If you look at what companies say that they want, consistently
in their workforce for the future they talk about creativity,
problem solving and management skills. However, they also want
the stem skills as well. What we need is a balance. We think in
terms of technical skills, which are the stem skills, and also
related skills that help you do your job directly, for instance
like being an excellent writer if you are a journalist. We also
think in terms of cognitive skills—creativity and problem
solving. You have to think in terms of attitudes: risk-taking,
ability to challenge the status quo and explore unusual
areas. We need to think about those three groups if we are going
to increase the UK's capacity for innovation through its schooling
and education systems.
Q166 Mr Weir: Innovation inevitably
brings some risk. It could be argued that the innovative use of
American sub-prime mortgages has led to the credit crunch. How
can these risks be reduced, particularly when public money is
involved, without introducing even more delays and bureaucracy
into the system?
Mr Halkett: Innovation inherently
involves risk. It is critical that that risk is managed effectively
and that people have a portfolio. When you are thinking about
innovation in public services as an expenditure, there are areas
that will be high risk but those should be balanced by areas of
low risk that assure delivery. People talk about making the public
sector in particular more pro-risk. That does not make sense.
Being pro-risk is an irrational thing to be. Having an understanding
of risk and being able to balance it correctly and make sure that
you are taking an educated risk makes a lot of sense. We need
to make that shift towards managing risk rather than this idea
of being pro risk in the public sector. There are ways of effectively
managing innovation. Some companies in the private sector are
very effective at doing this. They understand how to manage their
innovation systems; they understand how to offset risks against
each other. When you are looking at the public sector, particularly
procurement, which has been an emphasis of both the Enterprise
Strategy and the Innovation White Paper, then there are some innovative
approaches that can be used as well as making sure that procurers
themselves are highly trained. There is a process called second
sourcing, which means that you procure a safe approach to a particular
problem and then you procure either a competitive, highly innovative
approach or potentially you unbundle part of the main package
and allocate that to a highly innovative project. You are insuring
yourself against coming through any construction contracts to
make that the case. There are particular tools being used around
the world that can begin to improve this. The emphasis that has
been given to this in the White Paper gives me confidence, particularly
in the pilots with the Department of Health and Ministry of Defence,
that hopefully we will see some of these in the UK.
Q167 Mr Weir: That brings me on to
the next point about public sector innovation. Your submission
cites Denmark, Sweden, the Netherlands and France as counties
where public services are key drivers of innovation. In which
parts of the public sector has this innovation taken place?
Mr Halkett: It is in various sectors
of the economy. The crucial matter is that different approaches
have been taken. If you look at Denmark, it has adopted a national
strategy around user-centred innovation. They have done that in
their economy and also in their public services. They have made
that a focus. They have a national centre for it. In France it
has been more of a competition for central grants around things
like the TGV, et cetera, which has led to more regional
competition and innovation in public services. That said, as I
mentioned earlier, the Innovation in Public Services chapter in
Innovation Nation and the idea that DIUS is taking that as a core
part of its remit, the fact that the Office of the Third Sector
is so active in social innovation in the UK, show that the UK
is seen to be quite a leader at the moment in terms of trying
to drive innovation in public services. This is a long process.
One of the most interesting points in Innovation, the Nation White
Paper, was the agreement with the National Audit Office to undertake
a study into risk taking and how the National Audit Office can
support that in the UK's public services. That could be fascinating
because you need the agreement of the auditors to be able to take
risk. If risk is always penalised, no-one is ever going to take
it.
Q168 Chairman: Abolishing the Public
Accounts Committee might be a good start to encourage innovation
in the public sector in the UK?
Mr Halkett: You might say that
but I could not possibly comment.
Q169 Chairman: I think I will take
that as a "yes". We will not go down that at present.
You talked a bit about social change in your answer to Mr Weir.
Your organisation talks a lot about the role of social developments—the
ageing population, climate change and so on—in prompting
innovation. Have we been good enough in that area?
Mr Halkett: There is quite a lot
of activity around this, as you have probably seen. Every department
seems to be active at the moment. Certainly the words "ageing
population, environmental sustainability, demographic change,
and globalisation" appear in lots of strategies. I think
we have been looking at it from the wrong direction. We need to
think of problem backwards innovation. One of the problems we
have had is that because of innovation's basis in science policy
and because of some of the problems we were discussing earlier
about where this has taken us, we have tended to look at technologies
and say, "What can this do for us?" and that has been
our definition of innovation. What we are trying to do is look
at what we call the innovation that matters. For instance, take
the challenge of environmental sustainability and work backwards
and ask: what types of innovation will this require; what proportion
of it is technological innovation that can be stimulated by things
like the Energy Technologies Institute; what proportion of it,
though, is going to be social innovation that is required to change
behaviour; and what proportion of it is around innovation in public
services which will be required to support those changes in behaviour?
The crucial thing is to take the problem and then look back towards
the UK's innovation system. What we will probably find, and we
are already beginning to find in our research, is that we have
over-emphasised the idea that technology is going to mean that
we can have our cake and eat it; we can carry on keeping our lifestyles
because we are going to invent a fuel cell that means we can carry
on driving and that we do not need to change anything. At the
other end of the spectrum, some people are saying that we must
not fly, only eat organic food and only boil half a kettle. Neither
of those in isolation is really going to work, and of course they
are intimately linked. Problem backwards: look at the problem,
look at the types of innovation and the different parts of the
innovation system, the need to respond to it, and then work on
those, rather than saying, "Oh, we have this piece of kit,
this aero technology; it might save the world" and then emphasise
just working on that.
Q170 Chairman: We are going to the
United States in a few weeks' time to look at DARPA work there.
We are told that DARPA tends to take that approach. It says: "Here
is the problem; now solve it" rather than, "here is
the technology we would like you to develop". Is that caricature
fair?
Mr Halkett: That is a good analogy
for DARPA, which has an unusually privileged position internationally.
It has been remarkably protected in the aggressive fiscal climate
of the US over about 50 or 60 years to preserve this blue skies
sort of applied approach to innovation. It really is an extraordinary
entity. Although of course it is the Defence Advanced Research
Projects Agency, and that changes about every 10 years whether
it is defence or not depending on whether it is Democrat or Republican,
it is going to be interesting to see whether they are taking on
the challenge of things like environmental sustainability as well.
I would be interested to hear the results of that.
Q171 Chairman: I have greatly enjoyed
listening to a very clever man talk very intelligently about a
very important subject but I am a very practical man and micro
analysis is very strong indeed. What I would like to know is what
practical things could we recommend and do, what policy options
could we be suggesting quite specifically, the top two or three?
I am reminded that in 1714 this Parliament offered a £20,000
prize for a way to measure longitude. It had the right result.
It took a few years but he got there in the end. That is £6
million in today's money, I believe, so it shows that we were
prepared to cough up the money then. Is there anything practical
that we can do that you could recommend to us on a menu?
Mr Halkett: I think challenge-based
innovation policy is critical. I know that that already has currently
with the Technology Strategy Board and they are very interested
in that area. I would encourage you to pursue that. I do not think
you can completely move to that away from a more bottom-up approach.
It is critical to continue to support the research base—notice
I said research base and not science base and that is an important
distinction. It is critical to understand that knowledge exchange
between the research base and industry goes beyond high-tech manufacturing
and beyond science. Looking at things like knowledge transfer
partnerships and knowledge transfer networks should be borne in
mind constantly. It is critical to involve users and regulators
and the people who directly influence innovation in the development
of things like foresight programmes and innovation platforms.
These are all modifications to existing programmes that are important.
The second area in which government is critical is that it continues
to need to set a tone; it needs the power of rhetoric and persuasion
in the setting of priorities that demonstrate that innovation
is relevant to the whole of the economy in the public sector in
the UK and not just for the narrow definition we have had before.
Government consistently underestimates the effect that that can
have in terms of the priority that it can give to different types
of innovation and championing those in the UK. Finally, there
is a limited toolkit of new initiatives that I think would be
appropriate. although we do not automatically assume that you
should have policy recommendations for every new idea that we
come up with. As for the idea of foresight programmes that look
at non-technology areas, what is going to happen for instance
to the financial services area; what is going to happen to the
creative industries? Technology will be a part of that but not
much. We know that management training, as I said before, is critical
to the services industries. Why are we not thinking about some
kind of learning tax credit, something that reaches across other
areas like that? There is a limited toolkit of new ideas that
is important but the most important thing is that we make sure
that the existing policies that we have are most effective and
representative of the whole of the UK.
Chairman: That is a very helpful summary
of a very interesting hour. Thank you very much indeed. If, on
reflection, you feel there are things you would like to have said
to us that you did not have an opportunity to say, please feel
free to give us further information. We are very grateful to you.
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