Examination of Witnesses (Questions 200
- 214)
MONDAY 3 NOVEMBER 2008
RT HON
LORD DRAYSON
AND LORD
CARTER OF
BARNES
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 10 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. Powderject 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, Powderject became the world's sixth largest
vaccine company after 10 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% 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 have
a number of leaders. I would not describe all those leaders as
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
are 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 10 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 plastic electronics 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 EU. 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
know-how, 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 10 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.
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